The Options Market Expects Bitcoin’s Consolidation to Persist; Why They’re Wrong

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Bitcoin has been caught in the throes of an unrelenting bout of consolidation throughout the past several days and weeks, struggling to garner any clear trend.

Although it has technically been ranging since the start of May, its trading channel has been narrowing over the past month, with it now trading between $9,000 and $9,300.

It does appear that the cryptocurrency is growing weak, however, as it has flashed some bear-favoring signs over the past few days.

Currently, BTC is at risk of breaking below the lower boundary of this trading range, which could be enough to spark a sharp descent that sends it reeling lower.

Despite this, the options market seems to think that the benchmark digital asset will continue seeing limited volatility in the days and weeks ahead, with its implied volatility term structure being record steep.

Bitcoin Flashes Signs of Weakness as Technical Outlook Grows Dim

At the time of writing, Bitcoin is trading down by 1% at its current price of $9,050.

This is around where it has been trading at for the past week, but sellers are now trying to force it below $9,000.

The strong defense of this level that has been posted by bulls in recent times certainly bolsters the crypto’s outlook, but it remains vulnerable to seeing further downside as it hovers just a hair above this level.

$9,000 has been established as a crucial level for over eight weeks now. Its response to this level could ultimately play a role in its next mid-term trend.

This trend may begin developing soon.

One popular crypto analyst spoke about several data points suggesting that a significant volatility spike is imminent.

He notes that open interest on BitMEX has been growing and is now approaching $700 million, BTC’s realized volatility is now at an over 1-year low, and that there have been eight drops beneath $9,000 in the past two months.

“Many data points suggest a big spike in volatility is near. BitMEX OI building (near $700m), realized volatility at 1-year low (Skew data), and 8 drops below $9k in 2 months. For now, it seems bears have an edge going into next week.”

The Options Market Seems to Think BTC Will Keep Consolidating 

Data from analytics platform Skew shows that Bitcoin is currently forming one of its steepest implied volatility term structures ever seen.

“Bitcoin having one of its very quiet moment, implied volatility term structure is record steep.”

Bitcoin

Image Courtesy of Skew.

This indicates that implied volatility for options contracts with an imminent expiration is significantly lower than those with an expiration date in the distant future – meaning that options traders expect limited near-term volatility.

The above data points, however, seem to invalidate this notion.

Featured image from Shutterstock.

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