Bearish sentiment continues to dominate the Bitcoin market, with the major cryptocurrency on track to post its fifth consecutive month of losses. Currently, the price is consolidating below $70,000 as market bulls struggle to force a definitive breakout above the resistance zone.
Amid this volatile price movement, Bitcoin options market data shows that traders are starting to expect volatility to decrease, but are still aware of the fragile nature of the market.
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Bitcoin volatility forecast declines, market panic subsides
In a February 20th post on X, Glassnode shared a weekly Bitcoin options market update, analyzing trader behavior and sentiment related to current market conditions. Market analysis firms are reporting notable changes in volatility expectations that help subside the currently rising bearish sentiment.
At-the-money (ATM) implied volatility across maturities has fallen significantly to around 48%, significantly down from recent highs, according to analysts at Glassnode. Since ATM IV reflects the expected movement of the market, this decline suggests that traders are no longer betting on an immediate price crash.
In particular, this shift is reinforced by movements in DVOL, an indicator that measures aggregate implied volatility expectations. Following an initial spike during market clearing in late January and early February, DVOL has declined by about 10 volatility points over the past two weeks, indicating that extreme hedging demand is easing.
Furthermore, the short-term volatility risk premium (VRP) also turned positive. Earlier this month, one-week VRP plummeted to a significantly negative level of -45 as realized volatility was much higher than implied. Since then, the price of implied volatility has increased, realized volatility has stabilized, and short-term option premiums have recovered.
Taken together, these indicators suggest that panic prices are resetting and expectations for large, volatile moves are diminishing.
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Bitcoin traders remain wary of decline
Despite the drop in volatility expectations, other indicators show that traders are maintaining defensive positions in the market.
For example, the put skew, which measures the relative demand for downside protection versus upside exposure, remains very high despite moving away from extreme hedging. After bottoming out around 7 volatility points, the 25 delta skew for the week has rebounded towards 14 volumes. This recovery shows that while extreme fears have subsided, demand for downside insurance remains strong.
Taker flow data tells a similar story. Puts accounted for two-thirds of options trading last week, and outright put purchases accounted for about 34% of total flows. The predominance of a defensive stance suggests that market participants are not fully convinced that the correction has run its course.
In conclusion, the options market has a more cautious outlook, with expectations of immediate disruption waning, but traders are hedging to avoid new downside risks. At the time of writing, Bitcoin is trading at $67,628, up 0.92% over the past 24 hours.
Further data from Glassnode also shows that dealers are broadly shorting Gamma across a wide range of prices from $70,000 to $58,000, a positioning structure that could amplify selling pressure if Bitcoin widens its losses. Conversely, the large gamma concentration around $75,000 suggests a potential rebound.
Featured image from Flickr, chart from Tradingview
