According to crypto exchange Deribit, the general sentiment among pro traders is “more bearish overall,” which pushes the price of Bitcoin even lower. Bitcoin’s worth has been in decline since November 9th, which means that a “bearish” signal could be a mirroring of the 22% drop recorded since the ATH of $69,000.
The 25% delta skew is comparing call and put options side-by-side, and it would be able to turn positive when the protective put options premium reaches a higher level than similar risk call options, which points to a bearish sentiment.
The opposite holds when market makers are more bullish, and this leads the 25% delta skew indicator to be a part of the negative range.
It is usually seen as being neutral if readings are placed between negative 8% and positive 8%, which means that the analysis by Deribit is not wrong when it says that the sentiment has been indicating “Fear” since November 23rd. It is worth mentioning that the movement began to ease yesterday since the indicator is now at 8%, so it doesn’t support the trader’s bearish stance.
Taking a look at the futures markets now – futures premium looks at the difference registered between long-term futures contracts and the spot market levels recorded now. A 5% to 15% annualized premium is ok in a healthy market, a situation that goes by the name “contango.”
The price gap is a result of sellers asking for more money in order to withhold settlement for more time, while a red alert emerges when this indicator is fading or becomes native – this is known as “backwardation.”
While the options 25% delta skew has moved to “fear,” the futures’ main risk metric remained pretty stable at 11% between November 16th and November 25th. A minor drop was recorded, but the current 9% is seen as being neutral for futures markets, and it’s far from being bearish.
It is pretty hard to tell why pro traders and market makers using Bitcoin options markets have decided to overcharge for put options. Some are pointing to the fear of imminent risk following a US Senate Committee asking for info regarding the issuance of stablecoins on November 23rd.
The same day, the board of governors of the Federal Reserve System confirmed it is working on several “policy sprints” with the goal of addressing regulatory clarity in the crypto industry. This could change compliance and enforcement standards on current laws and regulations.
Nevertheless, this still doesn’t offer an explanation for *why* these uncertainties weren’t reflected on the Bitcoin futures markets, which has prompted some to ask if the 25% skew indicator should even be taken into consideration in the first place.
The December 31st Bitcoin options expiry has 60% of the current open interest, reaching a $13.4 billion aggregate exposure. As seen in the charts above, there’s basically no interest to put options beyond $60,000.
Considering call options are now 145% higher than the protective puts for December 31st, you probably don’t have to really worry about how market makers are pricing these instruments, as the 25% delta skew may actually not be that important in the first place.