- Bitcoin implied volatility remains in positive territory for now, making options cheaper and traders bearish.
- Although traders remain skeptical, macro-level concerns have receded considerably following the recent correction.
Bitcoin price action has become quite range-bound lately after dramatic swings earlier this month. On the weekly chart, bitcoin is up 3%, while the cryptocurrency has achieved double-digit gains in the same period.
With bitcoin trading in this ultra-narrow range, investors remain confused about the next move. Cryptocurrency analyst Lark Davis explains that we can expect bitcoin prices to fluctuate soon. Well, it remains to be seen whether bitcoin will break out to the upside or to the downside.
#bitcoin Been trading in a super narrow range today Volatility may be coming soon …… pic.twitter.com/FOlfmcYmkG– Lark Davis (@TheCryptoLark) February 2, 2022
How are traders feeling?
On Tuesday, February 1, cryptocurrency market analysis firm Arcane Research released a report stating that options traders in bitcoin are "bearish, but hesitant. The firm also noted that investors have not been this pessimistic for a long time since the market collapsed in May 2021.
At the time, Bitcoin witnessed a similar 50%+ correction over the course of a month. The Bitcoin Fear and Greed Index also shows that we are still in a state of fear. However, this has eased somewhat from the "extreme fear" level.
Bitcoin Fear and Greed Index at 28 – Fear Current price: $38,416 pic.twitter.com/jOKi7iR72x– Bitcoin Fear and Greed Index (@BitcoinFear) February 2, 2022
The report's analysis is based on the implied volatility of Bitcoin. Options allow traders to bet on the price movement of the underlying asset. Such traders buy "options" to trade when the asset reaches its target price.
Since Bitcoin is one of the volatile assets, its options are in higher demand because they have a greater profit potential. In addition, they are more expensive options due to the greater volatility of the asset.
Bitcoin's implied volatility is currently at its lowest level since May 2021, at 70%. Just for reference, implied volatility has reached 110% at one point in the past. At that time, traders said the price would double or halve.
Weekly Update: Week 4🔹 Confidence slowly returning to the market? 🔹 #Bitcoin ETP saw a small outflow in January 🔹 #Bitcoin Options traders are bearish 🔹 A report finds bitcoin’s carbon intensity is lower than the global average https://t.co/zYprniSMAI
Is the risk appetite of traders increasing?
In its latest report, Arcane Research explains that traders are reluctant to accept any pledges at this time. It Add : "The high volatility skew suggests they are hesitant to make targeted bets. Bitcoin options are usually cheaper than they have been in a long time."
Volatility deviation basically measures the price difference between bitcoin call options and put options. Based on historical trends in bitcoin, call options are typically more expensive than put options. This represents a bullish behavior and suggests that many people are more interested in buying bitcoin rather than worrying about selling it.
Macro market concerns are cooling off as options traders stay away. Arcane called bitcoin "the least risky cryptocurrency" in its research. "$40,000 is a key resistance level. With BTC's recent slow rise, we could see BTC testing this resistance level soon," it predicts.
Related: Bitcoin Drops 45% From All-Time High – Here's How Traders Handle Price Declines