Bitcoin (BTC) Options Market Hints Major Downside Risks Over Next 3-6 Months

The world’s largest cryptocurrency Bitcoin (BTC) continues to face strong selling pressure. On Monday, May 23, the BTC price tanked 3% moving under $30,000 despite the U.S. equity market moving higher.

Bitcoin continues to trade in the range of $28,500-$31,500 for a while now. Glassnode data shows that the BTC market has traded lower for eight consecutive weeks marking it the longest “continuous string of red weekly candles in history”.

Furthermore, a look into the Bitcoin derivatives market suggests the risks of further downside, at least over the next three to six months. In its latest report, on-chain data provider Glassnode explains that the Bitcoin options market continues to price in the near-term uncertainty.

During the market sell-off last week, the Bitcoin options implied volatility surged significantly. Glassnode explains:

Short-dated at-the-money options saw IV more than double, from 50% to 110%, whilst 6-month dated option IV jumped to 75%. This is a break higher from what has been a long period of very low implied IV levels.

Bitcoin Put Options Have Higher Preference

With a very strong bearish sentiment, the Bitcoin put options have a very strong preference looking into the end of Q2 2022. Just over the last two weeks, the Bitcoin put/call ratio for open interest has surged from 50% to 70%. It means that the market is preparing to hedge further downside risks.

By the end of Q2, there are strong put options with strike prices of $25k, $20k, and $15k. At the same time, the open call options are very low. Thus, by the mid of this year, investors have a strong preference for hedging risks thereby speculating further downside price action.

On a long-term basis i.e. by the end of the year, the options interest setup for Bitcoin is notably constructive. Glassnode explains:

There is a clear preference for call options, with concentration around strike prices of $70k to $100k. Furthermore, the dominant put option strike prices are at $25k and $30k, which are at higher price levels than the mid-year.