Bitcoin Options Update: Market Panic Is Ending But Traders Remain Defensive

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Bitcoin Options Update: Market Panic Is Ending But Traders Remain Defensive

Bearish sentiment continues to dominate the Bitcoin market as the first cryptocurrency looks set to record its fifth consecutive monthly loss. Currently, prices are consolidating below $70,000, as market bulls struggle to force a significant breakout above the resistance zone.

Amidst this choppy price action, data from the Bitcoin options market shows that traders are beginning to expect less volatility but still acknowledge the market’s fragility.

Bitcoin Volatility Expectations Drop, Market Panic Ends

In an X post on February 20, Glassnode shared its weekly review of the Bitcoin options market, analyzing trader behavior and sentiment in relation to current market conditions. The market statistics firm is reporting a significant change in volatility expectations that is helping to dampen bearish sentiments that are currently ramped up.

According to Glassnode analysts, At-the-money (ATM) mean volatility across maturities has fallen sharply to around 48%, down sharply from recent highs. Because the ATM IV indicates expected market movement, the decline suggests that traders are no longer betting on an immediate price crash.

Source: @glassnode on X

Notably, this change is reinforced by movements in DVOL, an indicator of expected valuation implied by aggregate volatility. Following a spike during the market close in late January/early February, DVOL has fallen by nearly 10 volatility points in the past two weeks, indicating that the demand for protection is waning.

Additionally, the short-term volatility risk premium (VRP) has become positive. Earlier this month, the one-week VRP fell to a record low of -45, as the observed volatility far exceeded expectations. Since then, implied volatility has fallen sharply while apparent volatility has stabilized, returning a premium to short-term options.

Together, these metrics suggest that price panics are resetting, and expectations for the best, most volatile have declined.

Bitcoin Traders Always Beware of Downsides

Despite cooling volatility expectations, some metrics show that retailers are maintaining a defensive market stance.

For example, Put skew, which measures the relative need for downside protection against upside exposure, remains high despite the move away from the extreme hedge. After dropping around 7 points of volatility, the one-week 25-delta skew rebounded to 14 vol. The recovery shows that although the panic has subsided, the demand for negative insurance remains strong.

The taker flow data also tells a similar story. Puts represented two-thirds of last week’s options activity, with outright purchases representing about 34% of total flows. The dominance of defensive positions suggests that market participants are not fully convinced that a correction has begun.

In conclusion, the options market shows a more balanced outlook, where expectations of immediate turmoil are over, but traders are hedging against the risk of further downside. At press time, Bitcoin is trading at $67,628 following a 0.92% gain in the last 24 hours.

Additional data from Glassnode also shows that Sellers are broadly short gammas within a wide price range between $70,000 and $58,000, a stance structure that could increase selling pressure if Bitcoin extends losses. Conversely, a large gamma concentration around $75,000 suggests a potential bullish position.