Traders in Bitcoin options continue to show signs that they expect the BTC price to rise further. The widely watched Bitcoin 25% delta skew has been over zero since the middle of January, and it just touched its highest level since Q4 2021, close to 6.0, as seen by a graphic on The Block.
These alternatives have a delta of 25%. One common way to gauge whether or not trading desks are overcharging investors for upside or downside protection via put and call options is to track the skew. An investor who purchases a put option has the right but not the responsibility to sell the underlying asset at the strike price, while a purchaser of a call option also has the right but not the obligation to purchase the underlying asset at the strike price.
Desks are likely charging more for similar call options than puts if the delta options skew is greater than 0. This indicates that investors are more interested in buying calls than puts, which is a positive sign because they want to hedge against (or speculate on) a price increase.
The Put/Call Ratio in Open Interest Is Another Indicator of Bullish BTC Mood
The steady increase in the 25% delta option skew for Bitcoin in January is indicative of a dramatic improvement in investor sentiment towards the largest cryptocurrency in the world in terms of market capitalization. Open Interest Put/Call Ratio, another options market indicator, is also showing signs of optimism.
The number of open BTC put options on derivatives exchange Deribit was 0.46, approaching to its lowest level since January 2022, as shown by a chart on the Block. After the FTX cryptocurrency failed in early November, its value jumped to a peak of 0.61.
Speculators Predicting the End of the Bear Market?
Investors, analysts, and commentators are increasingly of the opinion that the recent rebound in Bitcoin’s price may not just be another so-called “bear market rally,” as repeatedly occurred in 2022, but may be the beginning of a broader market recovery, thanks in large part to bullish signals regarding the kind of protection investors are demanding in the Bitcoin options market.
According to a recent report, analysts at the crypto data analytics platform Glassnode are seeing optimistic indications from six of the eight indices they track to determine when Bitcoin is emerging from a bear market.
Meanwhile, it seems that the macro headwinds of 2022 are starting to calm down. The bond market’s prediction that the Federal Reserve won’t be able to tighten rates much more in 2023 is looking more and more correct as US inflation rapidly falls to more tolerable levels and the US economy grinds to a halt in light of recent survey data and corporate earnings.
Many analysts believe that this storyline will continue to prop up Bitcoin’s price in the next months, as it has done so far in 2023. The above-mentioned indicators in Glassnode’s dashboard imply that the recent upswing may be more than just another bear market rally, despite the fact that some continue to dismiss it as such.
Further Evidence of Market Improvement
After a long period of Fear and Extreme Fear, the widely followed Bitcoin Fear & Greed Index has returned to neutral zone (i.e. above 50). When the next Bitcoin bull market begins, as it will in early 2019 and again in mid-2020, the market often returns to neutrality and stays there for the foreseeable future.
Meanwhile, research from the crypto-centric Twitter account @CryptoHornHairs has made the staggering revelation that Bitcoin has been following a near four-year market cycle for the past eight years. The study indicates that Bitcoin may have bottomed in November of last year and may rebound for another 900 days before entering its second bad market in 2025.
There is also a similar message being sent by a popular Bitcoin price scheme. The Bitcoin Stock-to-Flow pricing model suggests that the Bitcoin market cycle lasts about four years, with prices bottoming out roughly in the middle of the four-year gap between “halvings.” A “halving” occurs every four years when the Bitcoin mining reward is halved, which reduces the Bitcoin inflation rate. In 2024, when the next halving occurs, Bitcoin’s price is expected to skyrocket for a second time.