2022 is a rollercoaster ride of ups and downs for the blockchain industry. While the first quarter of the year looked promising, the crypto industry has been on a downward trajectory ever since. While indications of a global macroeconomic downturn are rising, these headwinds are hindering the potential recovery of the blockchain industry.
There are some signs of stabilization in the crypto market and potential upside at the beginning of the new year. For those serious about understanding the various sectors of the crypto space, including venture capital, derivatives, decentralized finance (DeFi), regulation and more, Cointelegraph Research publishes a monthly Investor Insights report. Compiled by leading experts on these various topics, the monthly report is an invaluable tool for quickly understanding the current state of the blockchain industry.
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Bitcoin Weakness in 2023?
Following the positive Consumer Price Index news on December 13, Bitcoin (BTC) saw its price temporarily reach $18,300. Still, despite the best efforts of the bulls, BTC has not been able to post a daily cap above $18,000 since November 9, 2022. As the tumultuous year in crypto comes to an end, the price of BTC remains in the range of $15,000 to $17,000, which gives a victory to the bears. after the option expires on December 30, when the bulls need to push the price above $18,000 to avoid a potential loss of $340 million for 2023.
BTC has gained 1,650% after dropping in March 2020 below $4,000, driven by the United States Federal Reserve’s quantitative easing policy. Even as of December 31, 2022, investors who bought BTC in March 2020 made a profit of about 330%. Since the collapse of FTX, the price of BTC has not recovered. The price drop to the last level seen two years ago is causing problems for both long-term and short-term holders, with more than 8 million BTC now held at a loss and reduced whale interest indicating weak price strength.
Bitcoin derivatives market reversal?
Skew is a key measure of market sentiment and capital flows because it captures what people expect to receive an asymmetric payoff in the up or down direction of the market. The most common slant size is 25 delta (25D). It involves comparing implied volatility of out-of-the-money (OTM) calls with 25% delta against OTM puts with 25% delta.
Delta can be understood as the probability that the option will expire in the money. A $16,000 one-week call at $16,500 would have a delta of nearly 100%, while a $36,000 one-week call would have a delta of nearly 0%. This is because it is almost certain that the $16,000 call will remain in the money, while the $36,000 call will remain OTM, due to the usual volatility.
Below is a chart of 1 million 25D Bitcoin options sideways from February 2021. The Y-axis measures the difference in implied volatility between 25D calls and 25D calls with the same expiration date. Negative skew means that the market wants to pay to hedge against the risk of a fall in the spot price of Bitcoin. Over the past two years, the 25D average has increased, signaling bearish sentiment. However, the 25D has increased by 46% since November, indicating that traders are becoming more optimistic.
Cointelegraph Research Team
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Demelza Hays, Ph.D., is the director of research at Cointelegraph. Hays has assembled a team of subject matter experts from finance, economics and technology to bring the leading source for industry reports and insightful analysis to the market. The team uses APIs from various sources to provide accurate and useful information and analysis.
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The opinions expressed in this article are for general information purposes only and are not intended to provide specific advice or recommendations for any particular individual or security or investment product.