Short-Term Bitcoin Rally Loses Steam, Uncertainty To Dominate Price Action?

Bitcoin (BTC) is back to its range after a failed attempt to reclaim previously lost territory, with a likelihood of seeing further losses. The crypto market has seen a weak price action in 2023, but BTC has been notably more fragile than other digital assets. 

As of this writing, Bitcoin trades at $16,800 with sideways movement in the last 24 hours. In the previous seven days, BTC records 1% in profits. Over the same period, Ethereum (ETH), Cardano (ADA), Litecoin (LTC), and others have seen gains north of 6% and 12%.

As price stalls in the Bitcoin spot market, the derivatives sector might provide more clues about price expectations. According to a recent report from crypto exchange Deribit, expectations of a spike in Volatility due to the New Year decreased. 

The report claims that market participants have been “hesitant” to jump into the current price action due to ambiguity around macroeconomic conditions. In addition, the crisis between Gemini and the Digital Currency Group (DCG) has added fuel to this sentiment. 

The DCG owns crypto lender Genesis, which owes Gemini Earn customers billions of dollars. If the first of these companies decides to liquidate one of their products to pay off their debt, the price of Bitcoin and other cryptocurrencies will likely trend to the downside. Deribit noted:

The Option market is dismissing material directional reaction to the Gemini-DCG deadline, and the relatively flat Skew across Terms is not signaling strong bias.

Implied Volatility, a measure of the market’s expectation around price movement, has declined. The option sector has been selling off under the current environment; the report notes some buying action around put (bearish) contracts for February and March. 

These contracts could be part of a hedging strategy from prominent players with Bitcoin spot positions. If the situation around DCG and Gemini resolves favorably, the market will likely trend higher. 

Additional data provided by Deribit reflects the current state of the market, which is dominated by no clear direction. As seen in the chart below, there is a lot of Open Interest, predominantly call option, around $17,000. 

This data suggests that market participants expect sideways price action going into the January 27 expiry. As mentioned, the DCG/Gemini situation and macroeconomic developments could shift this situation.