Options market sentiment is mixed, Bitcoin volatility may increase further

According to Barron's, the White House is planning to enact an executive order to regulate cryptocurrencies as a national security issue. Bitpush terminal data showed that before the news broke, Bitcoin rebounded 1.16%, but then fell nearly 3.4%. In the past 24 hours, Bitcoin has traded in a narrow range between $35,000 and $38,000. In addition, amid growing concerns about inflation and the Federal Reserve's upcoming rate hikes, Bitcoin and stocks have further converged.

According to a report from crypto data firm Kaiko, Bitcoin’s correlation coefficient with the Nasdaq broke 0.60 earlier this month, the highest level in more than a year. A coefficient of 1 means the assets are moving in sync, while -1 indicates a complete lack of correlation.

Bitcoin has fallen more than 20% this year. The Nasdaq has fallen nearly 14% over the same period. Analysts predict that once the current sell-off rebounds, Bitcoin should start trading in a less correlated manner.

“Cryptocurrency prices, along with growth stocks, have borne the brunt of the market correction over the past few months,” CoinShares CEO Jean-Marie Mognetti told Yahoo Finance, noting that uncertainty surrounding the Federal Reserve’s next move is weighing on the sector.

Separately, Bitcoin trading volume on major cryptocurrency exchanges fell from a day ago to its lowest level so far this week.

Derivatives Market

Options market sentiment is mixed. Crypto derivatives are sending slightly bullish signals, with the 8-hour funding rate remaining positive, meaning a very small number of speculators are expecting short-term bullishness, according to data from derivatives platform Coinglass.

However, Lennard Neo, head of research at Singapore-based crypto investment firm StackFunds, wrote in a Thursday note: “With $2 billion worth of options set to expire this Friday, expect greater volatility. We are seeing mixed sentiment among traders.”

Bitcoin's recent six-month put skew (Skew: the cost of put options relative to call options) has surged, suggesting that market participants are seeking protection from downside volatility. Historically, a positive six-month skew indicates a peak in bearish sentiment, similar to what occurred in April 2020 and late May 2021.

“Crypto markets are currently going through another test amid broader macroeconomic uncertainty related to global interest rate policy and the repricing of risk assets,” wrote Thomas Perfumo, head of business operations and strategy at Kraken Intelligence.

Technical indicators

On-chain analyst Damanick Dantes believes that in the past few days, Bitcoin has failed to sustain a brief price increase from $32,900 to $39,000. The cryptocurrency is trading in a narrow range on the intraday chart, with long and short forces evenly matched.

Over the past few weeks, price action has been trading below the downward sloping 100-day moving average on the four-hour chart, which indicates strong short-term selling pressure. So far, the brief price increase has been preceded by an oversold signal, which suggests that BTC has limited future upside given the ongoing downtrend since November.