With the halving just six days away, the crypto community is collectively holding on to their proverbial hats and counting down the days until the historic event takes place. Looking back, it’s quite amazing to see what has been achieved in the past four years since the last halving and how much the industry has matured.

Regulation has taken giant leaps, venues have become more sophisticated and transparent, and institutions have begun to dip their toes in the once murky waters of crypto. Along with a reduced supply, all the conditions are perfectly aligned for a post-halving bull run, and that is exactly what many crypto enthusiasts are expecting.

One noticeable proponent of such a result for the halving is PlanB, the anonymous analyst behind the famous stock-to-flow model. Recently tweeting about the event, PlanB expects the Bitcoin price to rise tenfold in the next two years, thus proving that his model can indeed predict the long-term direction of BTC’s price.

Forget the hype, here’s the data

With the price of Bitcoin rallying ahead of the halving and the crypto community being generally optimistic about the upcoming event, others are taking a more sober stance on the price action following the halving, given all the hype surrounding the specific date being an event where people “buy the rumor and sell the news.”

As the price rises in the days leading to the halving, it’s possible that traders will take profits immediately after the event. So what to make of all this? Supply and demand is just one of the things to take into account, and it is, of course, the pillar on which long-term valuation stands, but short-term price volatility does not adhere to that logic, as fear, greed and other man-made factors come into play.

Derivatives data can be extremely insightful, as more complex instruments such as options contracts produce datasets that simply do not exist in the spot markets. As such, here is a closer look at the Bitcoin options data to shed some light on the situation.

Being a highly complex market, Bitcoin options market participants are often considered the most knowledgeable players, and the data sets produced by this complex market can shed a light on where these experienced traders think the price is headed post-halving.

Implied volatility: Tables are turning?

For example, the implied volatility metric can tell a lot about the expected price of Bitcoin within the options market. When there is a higher premium for a certain strike price on an options contract, it means there is greater demand for these contracts. Data from the largest options market, Deribit, shows that options market players think the downside risk is higher than the potential upside.

BTC May 29 expiry volatility skew

However, this can also mean that traders are protecting their long positions on spot markets, including miners, who are inherently long on Bitcoin. Matt D’Souza, CEO of Blockware mining, told Cointelegraph:

“If Bitcoin is further adopted in, mining will likely be more commoditized and institutionalized which will reduce volatility in the price of Bitcoin. Present commodities like gold, oil or soybeans have large, institutional suppliers (Bitcoin miners are the present suppliers). In mature commodities like oil and gold these suppliers hedge their supplier which reduces volatility. This is just starting with Bitcoin. CME futures and options, Bakkt etc. so Bitcoin will mature and volatility will get reduced especially as more institutional players control the supply.”

Looking at the historical data can give an even better insight of how the sentiment is changing with time. The chart below shows that puts are more expensive than calls, which can mean the market thinks the security has a greater chance of falling than it does of rising. However, the trend is starting to favor calls (the upside), so it’s important to keep an eye on how this trend progresses.

BTC 25-day skew

According to James Li, analyst at CryptoCompare, the current data favors a cautious outlook on Bitcoin, but that is changing rapidly. He told Cointelegraph:

“With the recent rally, near terms expiries saw implied volatility picked up, whilst longer term expiries dropped. The 15th May contracts which expire right after the halving suggest prices can go both ways, with 25-delta only skewed very slightly to the put side, which means the demand is somewhat stronger on the downside. Longer term expiries, however, remain skewed on the put side but if we see persistent rallies, the sentiment can flip to the other side.”

Put-call ratio: Bullish or bearish?

Another metric to keep an eye on in the Bitcoin options market is the put-call ratio, which has been increasing, rising from 0.62 to 0.70 in the last week. While a rising put-call ratio can be looked at as a bearish sign at first glance, it may also point to a risk-averse market. Bitcoin trader and popular YouTuber Tone Vays told Cointelegraph:

“I think the majority of the people are wrong. A rising put/call ratio should be bullish for BTC price as most of those puts will expire worthless. Puts are also a good hedging (aka insurance) instrument so people that are hodling Bitcoin might be scared that mining will be in trouble and they are buying puts to protect their positions.”

BTC put-call ratio

In fact, many advanced traders shared the same perspective as Vays, especially if the ratio goes too far in either direction. D’Souza, who is also a hedge fund manager at Blockchain Opportunity Fund, shared a similar outlook on options, telling Cointelegraph:

“A rising put to call means many investors are buying downside protection. I love it as a contrarian indicator. So when put/call gets extreme or greater than usual, I actually get bullish because I take a contrarian position. I like to do the opposite of the herd. This is most importantly, take the other side for the most part when the ratios go too far in either direction.”

The elephant in the room

Although the options market and other metrics can give insight into what traders and other market players expect the BTC price to do, its interpretations should always be taken with a grain of salt. However, as Bitcoin continues to solidify its position as a new asset class, its “classical” volatility and unpredictability will continue to fade away.

Related: Institutional Investment Builds in Q1 2020, Sentiment Toward Crypto Funds Changing

In the meantime, it’s also important to take the “elephant in the room” into consideration — that is, the COVID-19 pandemic and the massive wave of unemployment that has come with it. With this in mind, it’s possible that many will be hoping to cash out after the halving in search of safe haven assets.