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Bitcoin derivatives give BTC insight into the halving

May 6, 2020

Since the crypto community is only a few days away, they cling to their proverbial hats and count down the days until the historic event. In retrospect, it is quite surprising to see what has been achieved in the past four years since the last halving and how much the industry has matured.

Regulation has made leaps and bounds, the scenarios have become more complex and transparent, and Institutions have begun to dip their fingers in the once cloudy water of cryptocurrencies. Together with a reduced offer, all conditions are met perfectly aligned for a bullish move after halvingAnd that’s exactly what many crypto enthusiasts are waiting for.

A notable proponent of such a halving result is PlanB, the anonymous analyst behind the famous stock-to-flow model. Recently in a tweet about the event, PlanB wait Bitcoin’s price is expected to increase ten-fold over the next two years, showing that its model can predict the long-term direction of the BTC price.

Forget the hype, here is the data

Bitcoin derivatives give BTC insight into the halvingBitcoin derivatives give BTC insight into the halving

As Bitcoin’s price rally is nearing halving and the crypto community is generally optimistic about the upcoming event, others are taking a more sober stance on post-halving price promotions, given the buzz around the date an event where people “rumor” buy and sell the news “.

As the price rises in the days before halving, Traders can make profits immediately after the event. What to do with all this Supply and demand are only one of the things to consider, and of course it’s the pillar on which long-term valuation is based, however Short-term price volatility does not adhere to this logic, as fear, greed and other man-made factors come into play.

Derivative data can be very revealing, as more complex instruments such as option contracts create data sets that simply do not exist on spot markets. Therefore, take a closer look at the data on Bitcoin options here to shed light on the situation.

As a highly complex market Bitcoin options market participants are often viewed as the most informed playersand the records created by this complex market can tell where these seasoned traders believe the price will go up in half.

Implicit volatility: are the charts changing?

For example, the implied volatility metric can tell a lot about the expected price of Bitcoin in the options market. If an option contract contains a higher premium for a specific execution price, this means that there is a higher demand for these contracts. Data from the largest options market, Deribit, shows that players in the options market believe that the fall risk is greater than the potential for an increase.

BTC volatility offset on May 29th

However, this can also mean that dealers They protect their long positions on spot markets, including miners who are inherently long-term investors in Bitcoin. Matt D’Souza, CEO of Blockware Mining, told Cointelegraph:

“”If Bitcoin is introduced later, mining will likely become more institutionalized, reducing the volatility of the Bitcoin price. Current staple foods like gold, oil or soy have large institutional suppliers (Bitcoin miners are the current suppliers). For mature products such as oil and gold, these suppliers cover their suppliers, which reduces volatility. This has just started with Bitcoin. So futures and options from CME, Bakkt etc. Bitcoin will mature and volatility will decrease, especially if more institutional players control the offer. “

A look at historical data can give a better idea of ​​how sentiment changes over time. The graphic below shows that puts are more expensive than calls, which can mean that the market believes that the value is falling rather than rising.. However, the trend is gradually favoring calls (upwards), so it is important to know how this trend is developing.

BTC 25 day offset

According to James Li, an analyst at CryptoCompare, the latest data suggest a cautious outlook on Bitcoin, which is changing rapidly, however. He said to Cointelegraph:

“”With the recent recovery, short-term maturities have increased implicitly, while long-term maturities have decreased. Contracts from May 15, which expire shortly after halving, suggest that prices can go either way, with the 25 delta tending slightly to the sell side, meaning that the demand on the side is slightly stronger . negative. However, the long-term terms remain distorted on the sales side. However, if we see a sustained recovery, sentiment can shift to the other side.“”

Put-call ratio: bullish or bearish?

Another measure that must be taken into account on the Bitcoin options market is the increased put-call rate. from 0.62 to 0.70 in the last week. An increasing sell-to-buy ratio may look like a declining sign at first glance, but it can also indicate a risk-averse market. Bitcoin trader and popular YouTuber Tone Vays told Cointelegraph:

“”I think most people are wrong. An increase in the put / call ratio should be bullish for the BTC price as most put values ​​expire worthless. Puts are also a good hedging tool (also known as insurance). As a result, people who track Bitcoin may be afraid that mining is in trouble and buy puts to protect their positions. “

BTC put-call ratio

In fact, many advanced traders shared the same perspective as Vays, especially when the relationship goes too far in both directions. D’Souza, who is also a hedge fund manager at the Blockchain Opportunity Fund, shared a similar perspective on the options and said to Cointelegraph:

“”A rising put-to-call means that many investors are buying fall protection devices. I like to see it as an opposite indicator. When the put / call becomes extreme or bigger than normal, I actually become bullish because I take an opposite position. I like to do the opposite of the pack. Most importantly, take the other side for the most part if the proportions go too far in either direction.“”

The elephant in the room

Although the options market and other measurements can give an insight into what traders and other market participants expect from the BTC priceHis interpretations should always be taken with a little caution. However, as Bitcoin continues to consolidate its position as a new asset type, its “classic” volatility and unpredictability will continue to disappear.

In the meantime, it is also important to consider the “elephant in the room”, ie the COVID-19 pandemic and the massive wave of unemployment associated with it. In this sense Many can expect to accumulate assets for safe haven after halving.

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