Bearish sentiment continues to grip the Bitcoin market as the cryptocurrency is poised for a fifth straight monthly decline. Prices are currently consolidating below $70,000, with buyers unable to secure a decisive breakout above this resistance level.
Amid this uncertain price movement, data from the Bitcoin options market indicates traders are anticipating less volatility, though they still recognize the market’s fragile state.
Bitcoin Volatility Expectations Ease as Panic Subsides
In a February 20 update, Glassnode reported a notable shift in volatility expectations that is helping to calm the prevailing bearish mood. Analysts noted that At-the-money (ATM) implied volatility—which reflects the market’s expected price movement—has fallen significantly to around 48% across various timeframes. This drop suggests traders are no longer betting on an immediate sharp decline.
This change is supported by the DVOL indicator, which tracks overall implied volatility expectations. After spiking during the market sell-off in late January and early February, DVOL has dropped by about 10 points over the past two weeks, indicating a reduction in extreme hedging demand.
Additionally, the short-term volatility risk premium (VRP) has turned positive. Earlier this month, the one-week VRP plunged to -45 as realized volatility far outpaced implied volatility. Since then, implied volatility has adjusted upward while realized volatility has stabilized, restoring a premium for short-term options.
Together, these metrics suggest that panic-driven pricing is being reset, and expectations for major, volatile swings have diminished.
Traders Stay Cautious of Further Declines
Despite the cooling volatility expectations, other data shows traders are maintaining a defensive stance. For instance, the Put skew—which measures demand for downside protection relative to upside exposure—remains elevated, though it has retreated from extreme levels. After falling to around 7 volatility points, the one-week 25-delta skew has rebounded toward 14, indicating that while extreme fear has eased, demand for downside insurance remains strong.
Taker flow data tells a similar story. Puts accounted for two-thirds of last week’s options activity, with outright put buying making up about 34% of total flow. This dominance of protective positioning suggests market participants are not yet convinced the correction is over.
In summary, the options market points to a more measured outlook, where expectations for immediate turmoil have faded, but traders are still hedging against the risk of further declines.
As of this writing, Bitcoin is trading at $67,628, up 0.92% over the past 24 hours. Additional Glassnode data shows that dealers are broadly short gamma across a wide price range between $70,000 and $58,000. This positioning could intensify selling pressure if Bitcoin’s losses continue. Conversely, a large concentration of gamma around $75,000 indicates some positioning for a potential rebound.
Frequently Asked Questions
Of course Here is a list of FAQs about the topic Bitcoin Options Update Market Calms but Caution Prevails Key Details designed to be helpful for both beginners and more advanced users
Beginner Definition Questions
1 What are Bitcoin options
Bitcoin options are financial contracts that give you the right but not the obligation to buy or sell Bitcoin at a specific price on or before a certain date They are a tool for trading or hedging based on future price expectations
2 What does Market Calms but Caution Prevails mean
It means that after a period of high volatility and big price swings the market has become less turbulent However traders and investors are still being careful and not overly optimistic as they see potential risks ahead
3 What is IV or Implied Volatility mentioned in options updates
Implied Volatility is a metric that shows how much the market expects Bitcoins price to move in the future High IV means traders expect big swings Low IV like in a calm market means expectations of smaller price moves
Market Analysis Questions
4 Why is the market calming down
This can be due to several factors a major news event has passed large positions have been settled or the price has found a temporary equilibrium where buyers and sellers are balanced
5 If the market is calm why should I be cautious
A calm period often comes before a significant price move Low volatility cant last forever Traders are cautious because they are watching for the next catalyst that could spark the next big swing up or down
6 What are key levels that analysts talk about
These are specific price points that many traders watch often where there is a large concentration of open options contracts major support or resistance levels on the chart A break above or below these levels can trigger rapid moves
7 What is the max pain theory for options
Its a theory that suggests the Bitcoin price will gravitate toward the strike price where the greatest number of options would expire worthless causing maximum financial pain