Is it a major move for traders to rush into the Bitcoin option as implicit volatility drops?
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As the broader crypto asset market has recently rallyed over $3 trillion in market capitalization, traders are increasingly seeking leverage through option contracts in Bitcoin and Ethereum.
This surge in derivative activity is due to the fact that both BTC and ETH prices are even across a narrow trading range, with Bitcoin between $94,000 and $95,000 in the same period.
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Tight price action is reflected in the implied volatility decline (IV) level. Bitcoin’s 7-day IV dropped from 53% to 38%, while the 30-day IV dropped to 43%, below 50%.
Ethereum’s volatility metric reflects this trend, with the 7-day and 30-day IV retreating from 74% to 61% and 69% to 63%, respectively. This decline in volatility is creating what some analysts call a low-cost environment for leverage, thus prompting traders to take advantage of option pricing dynamics.
Although the emotions are dispersed
Dr. Sean Dawson, head of research at derive.xyz, pointed out that option traders on the platform have a big bias towards bullish positioning. Dawson said:
73% of all BTC options premiums are used to buy phones, with Ethereum having a higher percentage of 81.8%.
According to Dawson, the ratio of Bitcoin calls to Bitcoin is more than 3:1, while the ratio of derived Ethereum calls to 4:1. However, he warned that derivative activities may not fully reflect the sentiment of the broader market as a whole.
Option data from Deribit exchanged by major crypto derivatives suggests a more balanced positioning, and normalized Delta skews indicate mixed emotions.
While derived users appear to be positioning upward price movements, other venues reflect more hedging strategies. Still, Dawson insists that without any major shocks, BTC and ETH may remain close to current levels by the end of May. Dawson wrote:
As far as price forecasts are concerned, the outlook for BTC is still stable, but the possibility of disadvantages is becoming increasingly bullish. By May 30 to May 30, the chances of BTC dropping above $110,000 are still 11%, while the probability of BTC dropping below $88,000 has dropped from 11% to 8%. For ETH, the chances of $2,300 to 30% by May 30 to 30% drop to $2,300 at a 9% rate, while the chances of it drop below $1,600 drop from 24% to 21% over the past 24 hours.
Bitcoin’s chain data shows the fundamentals of strengthening
At the same time as derivatives market activity, on-chain indicators indicate a boost to investor confidence. A crypto analyst named Yonsei Dent highlights the new momentum in the ratio of Bitcoin market value to realized value (MVRV).
As Bitcoin’s price recovers to $94,000, the MVRV ratio rises to 2.12, close to its 365-day moving average of 2.15. According to Dent, this means holders are currently at an average unrealized gain of about 112%, a level that has historically been consistent with a strong market positioning.
Dent added that if the 30-day moving average of MVRV exceeds the 365-day trend, the so-called “golden cross”, it can be used as a confirmation for the recovery of bullish momentum.
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Such patterns have been significantly assembled in previous cycles. However, Dent also stressed the importance of continuing to observe the MVRV trajectory to assess the sustainability of trends.
Feature images created with DALL-E, TradingView’s chart
