Will Bitcoin Bounce Back? Traders Place Their Bets on a Rocky Q4, Data Shows

So far, Bitcoin has seen significant volatility in the last trading session, hinting at frail investor sentiment. Earlier today, the asset soared to as high as $57,300. However, the asset now appears to have run out of steam after reaching this mark as it trades at $55,966, down by 1.6%.

This surge in volatility is a sign that the market has become more fearful as traders watch several key technical levels. However, the latest data suggests a shift in trader patterns as more defensive strategies are sought.

Analysts from the ETC Group report have noted a substantial increase in the open interest in Bitcoin options, pointing towards a strategic preference for downside protection. This is illustrated by the spike in implied volatility for short-dated options, indicative of more near-term price action.

The Bitcoin options trading market has given a glimpse of the current market mood. Recent data from Deribit show a put-call ratio—a metric that compares the trading volume of put options versus call options—higher than 1, indicating that the market is still bearish based on what traders are doing.

This ratio indicates a higher volume of trades betting on or hedging against a further price drop. The fact that we are seeing such alignment in the market indicates a sizable segment of the market is bracing for the possibility of Bitcoin continuing its descent.

ETC Group analysts agree with such a view, noting the peculiar term structure of volatility: higher implied volatilities in short-dated options versus longer-dated ones—a traditional characteristic of excessive bearishness on the market.

The analysts particularly noted:

Both the spike in put-call volume ratios as well as 1-month 25-delta option skew signalled a significant increase in demand for downside protection. BTC option implied volatilities have also increased slightly during the latest leg down. Implied volatilities of 1-month ATM Bitcoin options are currently at around 50.5% p.a.

The term structure of volatility is also inverted now with short-dated options trading at significantly higher implied volatilities than longer-dated options. This tends to be a sign of overextended bearishness in the options market.

These dynamics are being felt heavily in the market, with many prominent voices commenting on potential pathways for Bitcoin.

Long-time trader Peter Brandt hints he expects Bitcoin to form a double top setup, a bearish flag implying price drawdowns as deep as even $44K. Brandt, however, also accepts that the construction might not meet all requirements of a technical pattern and allows for different price consequences.

A more positive view comes from Timothy Peterson. He said that as Bitcoin can end July above $50,000, it has a “strong chance” of either hanging onto or even increasing in value into October.

According to Peterson, the chances are 60% that Bitcoin could trade quarter in the coming months and a 25% chance that Bitcoin will cross its all-time highs within the next three months.

Featured image created with DALL-E, Chart from TradingView