Despite prices for bitcoin (BTC) and ether (ETH) bouncing almost 10% from Friday’s lows, traders remain concerned that the two biggest cryptocurrencies may show weakness in the short term.
Bullish Sentiment vs. Cautious Sentiment
A positive risk reversal suggests that call options are more expensive than puts, indicating bullish sentiment in the market, while a negative figure suggests the opposite. However, options-based risk reversals tied to bitcoin and ether indicate a bias for short-term puts.
Options Trading on Deribit
According to Singapore-based QCP Capital, options trading on Deribit shows a bias for puts. "Given the velocity of last week’s dip, the market is still very cautious about downside risk," QCP’s market insights team said in a Telegram broadcast.
Risk Reversals Until October
"Risk reversals until October are still skewed towards puts in both BTC and ETH," Deribit Insight’s Tony Stewart said in a market update. This suggests that traders are concerned that prices will drop, particularly if the Federal Reserve cuts interest rates as expected next week.
Concerns Over Recession and Risk Aversion
The cautious sentiment perhaps stems from historical data, which shows recessions and risk aversion tend to follow the start of a Fed rate-cutting cycle. The central bank is widely expected to cut rates by 25 basis points next week.
Price Rallies May Be Fleeting
"Price rallies could be fleeting until the Fed meeting," according to Alex Kuptsikevich, the senior analyst at The FxPro. "In our view, caution and a tendency to sell growth will prevail in the market, at least until the release of U.S. inflation data on Wednesday. This could continue until the Fed’s interest rate decision on September 18th."
Solana (SOL) Seen as Relatively Resilient
Market participants expect Solana’s sol (SOL) to remain relatively resilient, outperforming ether in the near-term.
Options Skew Data Show Divergence Between SOL and ETH
SOL’s one-month options skew crossed above zero early Tuesday, according to Amberdata. Meanwhile, ether’s one-month skew hovered near -2%, exhibiting a bias for put options.
Market Participants Are Hedging Their Bets
"Traders are making significant moves to protect downside risk in Ethereum, while simultaneously showing appetite for upside potential in Solana," Kristian Haralampiev, structured products lead at Nexo, told CoinDesk in an email. "This divergence paints a picture of a market hedging its bets."
Ethereum’s Volatility Index Remains Elevated
"Adding to the intrigue, Ethereum’s volatility index remains notably elevated compared to Bitcoin’s, hinting at potential turbulence ahead for ETH," Haralampiev said.
Cautious Sentiment Persists Amid Expectations of Fed Rate Cut
Despite expectations that the Federal Reserve will cut interest rates next week, traders remain concerned about the short-term outlook for bitcoin and ether.
The options market is indicating a bias towards put options, which suggests that traders are concerned about downside risk. This cautious sentiment may be driven by historical data, which shows that recessions and risk aversion tend to follow the start of a Fed rate-cutting cycle.
Options Market Flows Indicate Concern Over Price Drops
According to Deribit Insight’s Tony Stewart, recent options market flows point to concern that BTC will drop to $50,000 or even $40,000. At press time, the biggest cryptocurrency by market value was priced around $57,000, CoinDesk data show.
Solana (SOL) May Outperform Ether in Near-Term
Market participants expect Solana’s sol (SOL) to remain relatively resilient, outperforming ether in the near-term. SOL’s one-month options skew crossed above zero early Tuesday, according to Amberdata.
Options Data Show Bias Towards Short-Term Puts in Bitcoin and Ether
Despite prices for bitcoin (BTC) and ether (ETH) bouncing almost 10% from Friday’s lows, traders remain concerned that the two biggest cryptocurrencies may show weakness in the short term.
The options market is indicating a bias towards put options, which suggests that traders are concerned about downside risk. This cautious sentiment may be driven by historical data, which shows that recessions and risk aversion tend to follow the start of a Fed rate-cutting cycle.
Key Points:
- Options trading on Deribit shows a bias for puts.
- Risk reversals until October are still skewed towards puts in both BTC and ETH.
- Traders remain concerned about downside risk, particularly if the Federal Reserve cuts interest rates as expected next week.
- Solana’s sol (SOL) is seen as relatively resilient and may outperform ether in the near-term.
Conclusion
The options market is indicating a bias towards put options, which suggests that traders are concerned about downside risk. This cautious sentiment may be driven by historical data, which shows that recessions and risk aversion tend to follow the start of a Fed rate-cutting cycle. Market participants expect Solana’s sol (SOL) to remain relatively resilient, outperforming ether in the near-term.
Recommendations
Based on the analysis, we recommend:
- Traders should be cautious about downside risk, particularly if the Federal Reserve cuts interest rates as expected next week.
- Investors may consider hedging their bets by buying put options on bitcoin and ether.
- Solana’s sol (SOL) is seen as relatively resilient and may outperform ether in the near-term.
