vBitcoin options markets turn bullish as BTC rally heats up, price rises above $28K
In a matter of days, investors’ view of the Bitcoin price outlook has turned from bearish to bullish, as represented by a shift in options market prices. The flip in investor sentiment comes as the Bitcoin price rises above the $28,000 level for the first time since early June last year, rallying from previous monthly lows to over 44%.
Annual gains are now close to 70%, with Bitcoin pumping amid 1) increased demand for assets considered a safe haven given problems in the global banking system and 2) increased bets that the US Federal Reserve will not engage in much further tightening. Indeed, in the coming week, the Fed’s policy meeting will be a key event, with investors divided on whether the bank will deliver a final rate hike of 25 bps.
Options Markets Flip Bullish
As Bitcoin fell below $20,000 for the first time in two months last week, the BTC price outlook according to the 25% delta bias of Bitcoin options expiring in 7, 30, 60, 90 and 180 days fell to the lows of years of between -5 to -10.
However, the aggressive price recovery has seen the 25% delta bias of Bitcoin options expiring in 7, 30, 60, 90 and 180 days have quickly recovered to bullish territory, with all near 5. For the 7-day 25% delta -bias, it is the highest level since mid-February. For the 30, 60, and 90-day biases, that’s their highest level since mid-January. Finally, for the 180-day bias, it is the highest level since November 2021.
The 25% delta option bias is a popularly watched proxy for the extent to which trading desks are over or underpricing for upside or downside protection via the put and call options they sell to investors. Put options give an investor the right, but not the obligation, to sell an asset at a predetermined price, while a call option gives an investor the right, but not the obligation, to buy an asset at a predetermined price.
A bias of 25% delta options above 0 suggests that desks charge more for equivalent call options versus puts. This implies that there is stronger demand for calls versus puts, which can be interpreted as a bullish sign as investors are more eager to secure protection against (or bet on) a rise in prices.
Bitcoin options markets thus send a message that investors are positioning themselves for further gains. And it makes sense in the context of recent moves.
Where next for the BTC price?
With Bitcoin now seemingly clearing resistance in the form of late May 2022 lows in the $28,000 area, the door is now open for a quick test of the psychologically important $30,000 level and then the early June 2022 highs of $32 500 area. Indeed, there is not much resistance to prevent such a rally.
Fundamentals appear to continue to support Bitcoin’s upside. If this week’s Fed meeting is dovish, associated risk flows and easing economic conditions should support the Bitcoin price. If the Fed is not as dovish as the market hopes, this could cause short-term price volatility, but is likely to lead to further strains on the US banking sector, which could increase demand for Bitcoin as a safe-haven option.
All the while, the trends on the chain look positive. Core metrics such as the number of non-zero balance wallets, the number of daily transactions, the number of daily active addresses and the frequency of new address creation are trending in the right direction. Alternative indicators such as those tracked in Glassnode’s “Recovering from a Bitcoin Bear” dashboard are (mostly) also flashing a bullish signal.
