Bearish sentiments continue to dominate the Bitcoin market as the leading cryptocurrency looks to post a fifth consecutive monthly loss. Currently, prices are consolidating below the $70,000 mark as market bulls struggle to force a decisive break above the resistance zone.
Amid this choppy price action, data from the Bitcoin options market shows that traders are starting to expect less volatility, but still recognize the fragile nature of the market.
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Expectations for Bitcoin volatility drop, market panic subsides
In one X message On February 20, Glassnode shared its weekly Bitcoin options market update, analyzing traders’ behavior and sentiment in relation to current market conditions. The market analysis firm reports a notable change in volatility expectations that is helping to quell the currently elevated bearish sentiments.
According to analysts at Glassnode, At-the-money (ATM) implied volatility across maturities has fallen significantly to around 48%, significantly lower than recent highs. Because ATM IV reflects the expected movement of the market, the decline suggests that traders are no longer betting on an immediate price crash.
This shift is particularly amplified by movements in the DVOL, an indicator measuring aggregate implied volatility expectations. After initial spikes during the market liquidation in late January/early February, DVOL has fallen by approximately 10 volatility points over the past two weeks, indicating that demand for extreme hedging is waning.
Moreover, the short-term volatility risk premium (VRP) has turned positive. Earlier this month, the one-week VRP fell to a deeply negative level of -45 as realized volatility far exceeded implied. Since then, implied volatility has priced higher while realized volatility has stabilized, restoring a premium for short-dated options.
Together, these numbers suggest that panic prices are resetting and expectations for excessive, volatile moves have diminished.
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Bitcoin traders remain alert to downsides
Despite the cooling in volatility expectations, other figures show traders maintaining a defensive market position.
For example, the Put Skew, which measures the relative demand for downside protection versus upside exposure, remains quite elevated despite the extreme hedge being exited. After bottoming near 7 volatility points, the one-week 25-delta skew has recovered to 14 vol. The recovery indicates that while extreme fear has subsided, demand for downside insurance remains strong.
The taker flow data also tells a similar story. Puts represented two-thirds of last week’s options activity, with outright put purchases representing about 34% of the total flow. The dominance of protective positioning suggests that market participants are not fully convinced that the correction has run its course.
In conclusion, the options market is showing a more subdued outlook, with expectations for immediate turmoil having faded but traders scrambling to hedge against the risk of a new downtrend. At the time of writing, Bitcoin is trading at $67,628, having gained 0.92% in the past 24 hours.
More data from Glassnode also shows that Dealers are generally short across a wide price range between $70,000 and $58,000, a positioning structure that could increase selling pressure if Bitcoin extends losses. Conversely, a large gamma concentration around $75,000 indicates positioning for a potential recovery.
Featured image from Flickr, chart from Tradingview