The bears have taken control of Bitcoin price, pushing the price to an intraday low of $ 53,569 after the options market showed bearish signals. Do traders have to worry?

Deribit exchange is the absolute leader in the Bitcoin (BTC) options market, and on November 24th, the 25% delta deviation indicator signaled that sentiment among professional traders was becoming “more bearish on totals.”

We saw the 25-delta put skew shift from around 0% in early November to nearly 10-15% by maturity, suggesting an overall bearish sentiment.
The premiums for hedging downwards are becoming more expensive.
In the short term, this procedure has a maximum pain of $ 58,000. ???? https://t.co/jhpT1riX3g

– Deribit (@DeribitExchange) November 24, 2021

“Since the beginning of November, we have seen a delta deviation rate of 25% from around 0% to almost 10-15% in the run-up to the event, which indicates a declining overall mood. Discounted premiums are becoming more and more expensive. The short-term maximum loss is $ 58,000. “

Bitcoin price appears to have been following a descending channel since November 9th, so the “bearish” signal could reflect the 22% decline from the all-time high (ATH) of $ 69,000.

Bitcoin price chart | Source: TradingView

The 25% delta deviation compares call options and put options side by side. It turns positive if the put premium is higher than that of the call options with the corresponding risk, which indicates a bearish sentiment.

The opposite happens when market makers are sloping up and the 25% delta deviation indicator goes into negative territory.

25% Bitcoin Delta deviation for 30 days | Source: laevitas.ch

Results of -8% to + 8% are generally considered neutral, so Deribit’s analysis is correct when it says that there was a significant shift towards “fear” on November 23rd, but that movement on August 26th % which no longer supports the bearish stance of traders.

What happened on the futures market?

The futures contract premium – also known as the “basis ratio” – measures the difference between longer-term futures contracts and the current spot price. In healthy markets, the so-called contango, an annual premium of 5 to 15% is expected.

This price gap is due to sellers charging more money to withhold payments longer, and a red alert occurs when the indicator fades or turns negative, known as backwardation. .

Bitcoin base rate for 3 months | Source: laevitas.ch

In contrast to the delta deviation of 25%, which has turned into “fear”, the risk figure for futures between November 16 and 25 was relatively flat at 11%, although it has declined slightly, but its current 9% is for the Futures market neutral and not even near bearish territory.

Traders mainly use call options

Why professional traders and market makers using the Bitcoin options market charge such high fees for put options can only be speculated. They may fear an impending risk after the US Senate Committee obtained information on the release of stablecoins on November 23.

On the same day, the Board of Governors of the US Federal Reserve (Fed) published a series of “policy sprints” aimed at creating regulatory clarity in the crypto industry. Administrations are likely to align compliance and enforcement standards with applicable laws and regulations.

However, that does not explain why these uncertainties are not reflected in the Bitcoin futures market. So the question arises as to whether the 25% delta deviation indicator should be ignored in this case.

Bitcoin Options Open Interest December 31st | Source: Coinglass.com

The Bitcoin Options expiration on December 31st holds 60% of the current Open Interest (OI) of $ 13.4 billion. As the graph above shows, there is virtually no profit on put options above $ 60,000.

Given that the call options on December 31st are 145% larger than the put options, one shouldn’t worry too much about how market makers rate these options. So the 25% delta deviation isn’t that important right now, despite Deribit’s bearish warning.

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Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.

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