Key Takeaways:
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Professional traders are paying a 13% premium for downside protection as Bitcoin struggles to keep up support above $66,000.
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While stocks and gold remain strong, Bitcoin ETF outflows of $910 million suggest increasing caution amongst institutional investors.
The price of Bitcoin (BTC) entered a downward spiral after rejecting the near $71,000 mark on Sunday. Although the $66,000 mark was successfully defended throughout the week, the choices markets reflect growing fear as skilled traders avoid the chance of a price decline.
Despite the relative strength of the stock market and gold prices, traders seem like effectively betting on a retest of $60,000 fairly than overreacting to Bitcoin price declines.
BTC delta skew for two-month options (put call) at Deribit. Source: laevitas.ch
Bitcoin put (sell) options traded at a 13% premium in comparison with call (buy) instruments on Thursday. Under neutral conditions, the Delta Skew metric is usually between -6% and +6%, indicating balanced demand for upside and downside strategies. The indisputable fact that these levels have been maintained over the past 4 weeks shows that the sentiment amongst professionals is leaning heavily towards caution.
Top BTC options strategies on Derbit within the last 48 hours, USD. Source: Laevitas.ch
This bearish bias is clear within the neutral to bearish positioning of Bitcoin options. According to Laevitas data, the Bear Diagonal Spread, Short Straddle and Short Risk Reversal were probably the most traded strategies on the Deribit exchange within the last 48 hours.
The first reduces the fee of the bearish bet since the short-term option loses value faster, while the second maximizes profit when the Bitcoin price barely moves. Short-term risk reversal, then again, generates take advantage of a downward move with little or no upfront cost, but carries unlimited risk if the value rises.
Weak institutional demand for Bitcoin ETFs is fueling discontent
To higher assess traders' risk appetite, analysts often take a look at demand for stablecoins in China. When investors rush to exit the cryptocurrency market, this indicator often falls below parity.
USD stablecoin premium/discount relative to the USD/CNY exchange rate. Source: OKX
Under neutral conditions, stablecoins should trade at a premium of 0.5% to 1% to the US dollar/yuan exchange rate. This premium offsets the high costs of traditional foreign exchange conversion, transfer fees and the regulatory friction brought on by China's capital controls. The current 0.2% discount suggests moderate outflows, although that is an improvement from Monday's 1.4% discount.
Part of the present dissatisfaction amongst traders may be explained by weak inflows into Bitcoin exchange-traded funds (ETFs), which function an indicator of institutional demand.
Daily net inflows of US-listed Bitcoin ETFs, USD. Source: Farside Investors
US-listed Bitcoin ETFs have seen $910 million in total outflows since February 11, likely unnerving bulls, especially as Bitcoin traded 47% below its all-time high while gold prices hovered near $5,000, up 15% in only two months. Likewise, the S&P 500 index was just 2% below its own all-time high, suggesting that this risk aversion is essentially limited to the cryptocurrency sector.
While Bitcoin options signal fears of further downside, traders are more likely to remain extremely cautious until a transparent rationale for the drop to $60,200 on February 6 finally emerges.
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