Key takeaways:
Professional traders are paying a 13% premium for downside protection as Bitcoin struggles to maintain support above $66,000.
While stocks and gold remain strong, $910 million in Bitcoin ETF outflows suggest that institutional investor caution is rising.
Bitcoin (BTC) price entered a downward spiral after rejecting near $71,000 on Sunday. Despite successfully defending the $66,000 level throughout the week, options markets reflect growing fear as professional traders avoid downside price exposure.
Even with relative strength in the stock market and gold prices, traders seem to be effectively betting on a $60,000 retest rather than overreacting to Bitcoin price dips.
Bitcoin put (sell) options traded at a 13% premium relative to call (buy) instruments on Thursday. Under neutral conditions, the delta skew metric typically ranges between -6% and +6%, indicating balanced demand for upside and downside strategies. The fact that these levels have been sustained over the past four weeks shows that professional sentiment is leaning heavily toward caution.
This bearish bias is clear in the neutral-to-bearish positioning seen in Bitcoin options. According to Laevitas data, the bear diagonal spread, short straddle and short risk reversal were the most traded strategies on the Deribit exchange over the past 48 hours.
The first lowers the cost of the bearish bet because the short-term option loses value faster, while the second maximizes profit if Bitcoin price barely moves. The short risk reversal, on the other hand, generates profit from a downward move with little to no upfront cost, but it carries unlimited risk if the price spikes.
Weak institutional demand for Bitcoin ETFs fuels discontent
To better gauge the risk appetite of traders, analysts often look at stablecoin demand in China. When investors rush to exit the cryptocurrency market, this indicator usually drops below parity.
Under neutral conditions, stablecoins should trade at a 0.5% to 1% premium relative to the US dollar/Yuan exchange rate. This premium compensates for the high costs of traditional FX conversion, remittance fees and the regulatory friction caused by China's capital controls. The current 0.2% discount suggests moderate outflows, though this is an improvement from the 1.4% discount seen on Monday.
Part of the current discontent among traders can be explained by the lackluster flows in Bitcoin exchange-traded funds (ETFs), which serve as a proxy for institutional demand.
Related: Bitcoin ETFs still sit on $53B in net inflows despite recent outflows–Bloomberg
US-listed Bitcoin ETFs have seen $910 million in total outflows since Feb. 11, which likely caught bulls off balance, especially as Bitcoin traded 47% below its all-time high while gold prices hovered near $5,000, up 15% in just two months. Similarly, the S&P 500 index sat only 2% below its own all-time high, indicating that this risk-aversion is largely restricted to the cryptocurrency sector.
While Bitcoin options signal a fear of further downside, traders are likely staying extremely cautious until a clear rationale for the crash to $60,200 on Feb. 6 finally emerges.
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