Bitcoin options market turns most bearish since 2022 with investors facing new wall of worries

Bitcoin options markets are signaling that investor sentiment has hit a new low for the year, as investors face a mounting wall of concerns, including the prospect of a US regulatory crackdown and a possibly more hawkish monetary policy outlook from the US Federal Reserve. That’s according to data provided by crypto analytics firm The Block, which showed that the widely followed 25% delta bias of Bitcoin options expiring in seven days hit its lowest level of the year on Friday the 10th.^th of February.

The seven-day delta bias of 25% reached -5.2 on Friday, the lowest since the 28th.^th of December 2022. The 30, 60, 90, and 180-day 25% delta biases were all at or near at least one-month lows, with all but the 180-day falling back below zero in recent days. It suggests that investors are positioned for further downside in the Bitcoin price in the near term.

The 25% delta option bias is a popularly watched proxy for the extent to which trading desks are over or underpricing for upside or downside protection via the put and call options they sell to investors. Put options give an investor the right, but not the obligation, to sell an asset at a predetermined price, while a call option gives an investor the right, but not the obligation, to buy an asset at a predetermined price.

A bias of 25% delta options above 0 suggests that desks charge more for equivalent call options versus puts. This implies that there is higher demand for calls versus puts, which can be interpreted as a bullish sign as investors are more eager to secure protection against (or bet on) a rise in prices.

Growing wall of worries

The deterioration in bond market sentiment comes as Bitcoin’s price has fallen more than 7% over the past seven days, as investors take profits from 2023’s rally given growing concerns about a US regulatory crackdown and a more hawkish than previously thought Fed. As for the former, the US Securities and Exchange Commission’s recent move to crack down on US-based crypto-staking service providers is provoking fears that major cryptocurrency exchanges could be in the crossfire for further enforcement action this year.

Meanwhile, the recent spate of significantly stronger-than-expected US data (such as last week’s jobs and ISM Services PMI numbers) has led markets to price in a more hawkish Fed tightening profile for this year, undermining hopes that the Fed can be close to being “done” in its fight against inflation. Next week’s US CPI inflation numbers will be an important addition to the Fed’s tightening story, with any upside surprises likely to exacerbate Bitcoin’s woes.

But investors remain bullish on Bitcoin’s long-term prospects

As mentioned above, the 180-day 25% delta bias remains above zero, indicating that the market’s long-term view of Bitcoin remains moderately positive. Given the growing list of chain and technical indicators that are all now screaming that the 2022 bear market is likely over, and the fact that even if the Fed makes a few additional rate hikes, the end of tightening still remains. in view, expecting a positive bias for the year continues to make sense.

But that doesn’t mean every month is going to be like January. In crypto, there is almost never a straight line higher.