The conditions of the cryptocurrency market have changed drastically; according to an analysis by QCP Capital, the options market in its current state makes the crypto industry look like a major crisis, such as the shutdown of crypto exchange FTX after filing for bankruptcy, never happened.
Trading desk QCP Capital published observations on the crypto industry, revealing some key points to consider for the coming months.
The Crypto Market Comes Back To Life
QCP’s analysis points out that Bitcoin (BTC) risk reversals have been trading in positive territory over the past week, which tells us that calls (buys) have been more expensive than puts (sells) since 2021 across multiple tenors.
This is unusual for the sector as BTC typically has a persistent put skew, mainly due to miner/treasury hedging activity. The chart below depicts this market behavior and the bullish sentiment impacting the options sector.
Put skew drives the price of puts higher and calls lower. This difference in pricing between options is called skew and, under normal circumstances, puts trade with higher volatility than calls precisely because investors are hedging some of their bullish positions.
For the trading desk, this means that the sentiment in the cryptocurrency market has shifted from bearish to bullish, a culmination of what has been happening in the macro market and the slight recovery in the economy.
Bulls Might Get Their Hearts Broken On Valentines Day
Ethereum’s (ETH) implied volatility (IV), which represents the expected volatility of a stock or currency over the option’s life, has fallen, indicating complacency as the market prices out fears of a price collapse, according to the analysis.
The enthusiasm in the market can be measured by the amount of “fear of missing out” (FOMO) that has set in, with many chasing prices and the top by buying high delta calls and going long in the spot market over the past week.
With the upcoming “Big Bad” Federal Open Market Committee (FOMC) meeting, the trading desk expects the market to be more cautious and conservative.
According to QCP, the following potentially problematic date will be February 14th, when the following CPI report will occur, which can potentially “break the heart of the bulls.”
For QCP, this is the same scenario the market experienced in December. Similarly, the price may experience a topside breakout characterized by a highly sharp and violent movement.
Bitcoin is currently trading at $23,200 and seems to be paving the way for the conquest of new levels. It has gained 0.7% in the last 24 hours and 10.3% in the last seven days. Bitcoin is trying to break the next obstacle represented by the $24,400 level.
Ethereum is trading at $1600, up 0.3% in the last 24 hours, with sideways price action. The next resistance wall is at $1,691, a zone the bulls have not visited since September 2022. Ethereum has gained 3.8% in the last seven days.
Cover image from Unsplash, charts from Tradingview.