The state of the cryptocurrency market has changed drastically; according to an analysis by QCP Capital, the options market in the current state makes the crypto industry look like a major crisis, such as the death of the crypto exchange FTX after filing for bankruptcy, never happened.
QCP Capital trading desk published observations on the crypto industry, revealing some important points to consider for the coming months.
The Crypto Market is Reviving
QCP analysis shows that Bitcoin (BTC) risk reversal has been trading in positive territory for the past week, which tells us that calls (buys) are more expensive than sells (sells) from 2021 in many tenors.
This is unusual for the sector as BTC usually has a persistent tilt, mainly due to miner/treasury hedging activity. The chart below illustrates market behavior and bullish sentiment affecting the options sector.
Put a skew drive the price puts higher and calls lower. The difference in price between these options is called skew and, under normal circumstances, places the trade with higher volatility than calls as investors hedge some bullish positions.
For the trading desk, this means that the sentiment in the cryptocurrency market has changed from bearish to bullish, the culmination of what is happening in the macro market and the slight economic recovery.
Bulls Can Break Their Hearts On Valentine’s Day
Ethereum (ETH) volatility (IV), which indicates the expected volatility of the stock or currency during the life of the option, has decreased, indicating complacency with the market price due to the fear of price collapse, according to analysis.
Enthusiasm in the market can be measured by the amount of “fear of missing out” (FOMO) that has set in, with many chasing prices and tops by buying high and long delta calls in the spot market in the past week.
With the “Big Bad” Federal Open Market Committee (FOMC) meeting, trading desks expect markets to become more cautious and conservative.
According to QCP, the date that could be a problem below is February 14, when the CPI report below will occur, which may “break the heart of the bulls.”
For QCP, this is the same scenario as the market in December. In addition, the price may experience a topside breakout characterized by sharp and violent movements.
Bitcoin is currently trading at $23,200 and looks set to pave the way for a new level of conquest. It has gained 0.7% in the last 24 hours and 10.3% in the last seven days. Bitcoin is trying to break the next barrier represented by the $24,400 level.
Ethereum is trading at $1600, up 0.3% in the last 24 hours, with sideways price action. The next wall of resistance is at $1,691, a zone that has not been opened by the bull since September 2022. Ethereum has gained 3.8% in the last seven days.
Cover image from Unsplash, chart from Tradingview.