Options data speaks volumes about cryptocurrency market sentiment, and the downside bias in ETH risk reversals suggests that traders are betting on a decline in Ether prices.
Posted on April 17, 2024 at 4:00 AM EST.
This has been a volatile week for crypto markets, with Ether, the second-largest cryptocurrency by market capitalization, being one of the hardest-hit digital assets, falling more than 11% over the past seven days.
in Note On Tuesday, crypto hedge fund QCP Capital noted that the crypto market is becoming increasingly nervous as the downside skew of ETH risk reversal sinks deeper to -20%.
7-day ETH skew reached 17%
In the world of options, this is basically the peak of fear.Bet on the local bottom. pic.twitter.com/ckYERCSstV
— Hansolar (@hansolar21) April 17, 2024
Volatility skew refers to the difference in implied volatility (or how much the market expects the price of an asset to move) for different levels of options with different strike prices.
Risk reversal is an options strategy that traders use to take advantage of volatility skew by selling an out-of-the-money put option and simultaneously selling an out-of-the-money call option with the same expiration date. Buy to protect yourself from downside risk.
“We expect these tensions to continue as the Iran-Israel conflict evolves. Risk-off sentiment has been further exacerbated by the weakness in US stocks,” the firm's analysts said.
Analysts also observed that altcoins' perpetual funding rates are generally negative, meaning that long-term leveraged trading has been wiped out.
“Given the prevailing nervous conditions, we recommend picking the bottom very defensively by purchasing BTC or ETH at a significant discount to the spot price,” they wrote. Stated.
Based on past price movements, the current volatility setup could see ETH move sharply in either direction.
More than half of $9 billion worth of altcoin open interest was wiped out last week, according to Zaheer Ebtikar, founder of crypto hedge fund Split Capital, and the ratio of altcoins to market capitalization was the lowest since September. .
We always tell the people we work with that we buy and sell terms, not price.
Cryptocurrency is the biggest user of “public comps,” so any time we make an investment decision based on anything other than this, we are making some hand-waving nonsense.
good night.
SC
— Zaheer (@SplitCapital) April 15, 2024
“Despite the bearish outlook in the medium term, this is precisely why I am betting on the rise of ETH. It is a great proxy for the alternative market and, to be honest, using options As Zaheer points out, it's not the price you're trading on, it's what's going on inside. Said Another trader at X.
