Market data from Skew shows investors in the Bitcoin (BTC) options market are cautiously bearish in the short term as of Sep. 8. The shift in sentiment comes after BTC’s abrupt 17% drop in seven days.
The daily chart of Bitcoin. Source: TradingView.com
Bitcoin fell below the $10,000 support level for the fourth consecutive day. Some analysts say that the repeated test of the same level is a bearish sign. Others say that BTC is showing resilience at an important support area.
Why the Bitcoin options market data might be more relevant this time around
Throughout the recent pullbacks, BitMEX rarely saw long contract liquidations total above $50 million.
Typically, when the price of Bitcoin falls by 5% to 15%, BitMEX tends to see liquidations above $80 to $100 million.
The lackluster liquidations on major futures exchanges come from a relatively low open interest. The term open interest refers to the total amount of short and long contracts open at a certain time.
The futures market data indicates that the majority of the selling pressure did not come from cascading liquidations. Rather, miners or whales taking profit on their holdings likely triggered the sharp pullback since early September.
The options data could become more relevant in the short term because the futures market has been stagnating.
Traders in the cryptocurrency market generally use two types of derivatives to trade Bitcoin: options and futures.
Total Bitcoin option open interest. Source: Skew
While the aggregated open interest of Bitcoin futures has been falling, options open interest began to recover since Aug. 28. Researchers at Skew wrote:
“Bitcoin options flows show: short-term bearish, medium-term neutral, long-term bullish. A fair representation of consensus?”
Where traders expect BTC to head in the short term
In the near term, traders are exploring three main areas: Bitcoin whale buy orders at $8,800, the $9,650 CME gap, and the $10,620 CME gap. Edward Morra, a cryptocurrency trader, explained:
“CME chart has a fresh gap 10620, usually most of the gaps (~90%) are filled within few days max, with exceptions (10%) that take a long time (like your $9,6 gap from July). So, it makes sense to assume higher gap at 10620 gets filled first here and then we see how it goes.”
If BTC sees a relief rally, it could achieve both CME gaps, hitting the higher gap first. But a pseudonymous trader known as “Byzantine General” says there might not be enough shorts to trigger a squeeze. He said:
“People keep talking about a “squeeze”. But OI dropped like a rock and funding is baseline. What shorts are there to squeeze?”
Bitcoin open interest across major futures exchanges. Source: Coinalyze.net
The declining Bitcoin futures market’s open interest and the repeated retest of $10,000 support the short-term bear case for BTC. Whether it sees a relief rally after a 20% drop in 23 days remains to be seen.