Waiting for a sharp change in Bitcoin price as BTC volatility fell to a 16 month low

Total open interest in Bitcoin (BTC) options has increased to $ 2 billion, which is 13% below its all-time high.. Although the open interest remains heavily focused on the Deribit exchange, the Chicago Mercantile Exchange (CME) has also hit $ 300 million.

In simple terms, lOptions derivative contracts allow investors to buy protection, either up (call options) or down (put options).. While there are some more complex strategies out there, the very existence of liquid options markets is a positive indicator.

According to Coinmarketcap, Bitcoin’s market cap is currently $ 210,097,879,074.

Waiting for a sharp change in Bitcoin price as BTC volatility fell to a 16 month low
Waiting for a sharp change in Bitcoin price as BTC volatility fell to a 16 month low

For example, With derivative contracts, miners can stabilize their income, which is tied to the price of a cryptocurrency. Arbitrage and market-making companies also use these instruments to hedge their transactions. Ultimately, highly liquid markets attract larger participants and increase their efficiency.

Implied volatility is a useful and primary measure that can be derived from option prices.. Whenever traders perceive a higher risk of larger price fluctuations, the indicator rises. The opposite occurs during times when the price remains the same or when price fluctuations are likely to be milder.

The 3 month options contracts implied volatility. Source: Skew

Volatility is commonly known as an indicator of fear, but it is mostly a retrospective metric. The 2019 high shown in the graph above coincided with the June 26 high of $ 13,880, followed by a sudden drop of $ 1,400. The most recent increase in volatility in March 2020 came in just 8 hours after falling 50%.

Indicators signal an abrupt price change in the process

Periods of low volatility are catalysts for more substantial price movementsThey indicate that market makers and arbitration desks are willing to sell protection at lower premiums.

That’s because An increased open interest in derivatives leads to longer settlements in the event of sudden price changes.

Investors should then turn their attention to the futures markets to assess whether a potential storm is brewing.. The increase in open positions means either a larger number of market participants or the creation of larger positions.

Bitcoin futures contracts increase open interest. Source: Skew

The current $ 4.2 billion in open positions They may be modest compared to the August high of $ 5.7 billion, but they are still relevant.

A few Reasons could be to withhold a larger number, including the current CFTC fees against BitMEX and KuCoin’s $ 150 million hack.

The high volatility is another critical factor that is holding back the open interest in Bitcoin derivatives..

While 57% is the lowest in 16 months, it’s still a sizable premium, especially for long-term options. Both options and futures offer a lot of synergies as the most advanced strategies combine both markets.

A buyer who targets a goal of $ 14,000 in 160 days by March 21st will pay a 10% premium. Therefore, when it expires, the price should be $ 15,165, or 34% above the current price of $ 11,300.

Apple’s 90 Day Implied Volatility (AAPL). Source:

For comparison: Apple shares (AAPL) have a 3-month volatility of 41%. Although more than 29% of the SP 500, the long-term shock has surprising effects versus 47% for Bitcoin. The same 34% increase for a March 2021 call option for AAPL shares translates into a 2.7% premium.

Put things in perspective If an APPL share were priced at $ 11,300, that March 2021 option would cost $ 308. Meanwhile, BTC is trading at $ 1,150, which is almost four times as expensive..

Bet on the $ 20,000? Options may not be the best way to go

While holding a perpetual futures position for extended periods of time has an implicit cost, it was not a burden. This is because the perpetual futures funding fee is typically charged every 8 hours.

Perpetual Futures Financing Rate. Source: Digital Assets Data

The financing rate has fluctuated between positive and negative for two months. This leads to a neutral net effect on buyers (longs) and short sellers who may have had open positions.

Because of their inherent high volatility, Bitcoin options may not be the optimal way to structure leveraged betting. The same cost of $ 1,150 for the March 2021 option could be used to purchase Bitcoin futures with a leverage of 4. This would translate into a profit of $ 1,570 (136%) once Bitcoin hits the same 34% increase required to be the option’s breakeven point.

The above example does not invalidate the use of options, especially when developing strategies that involve selling call or put options. Remember that The options have a fixed expiration date. If the desired price range does not occur until the next day, no profit will therefore be made.

For the cops out there Unless a price range and time frame are taken into account, sticking to the eternal future seems like the best solution right now..

The views and opinions expressed here are solely those of darer and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You must do your own research when making a decision.

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