Ether and bitcoin derivatives traders are losing confidence in the potential for higher prices, analyst says

Reduced implied volatility of ether and bitcoin at-the-money (ATM) options signals diminished confidence in the potential for higher prices, according to an analyst.

According to The Block's Data Dashboard , implied volatility (IV) for ether ATM options has dropped from over 88% to a current IV of around 60% for one week, one month and multi-month expires. IV for bitcoin ATM options for the same expiry ranges has also fallen, from a mid-month high of over 77% to a current reading of below 51%.

 

"The plummeting implied volatility is astonishing" according to cryptocurrency derivatives trader Gordon Grant. He told The Block the multi-week IV drop is consistent with a decline in realized volatility as well.

Traders 'throw in the towel' on higher price expectations

Grant added that derivatives traders who have been selling options contracts, both before and after the recent halving event, have given up on expecting bitcoin prices to rise further.

"Structured product flows have come to rinse the market with gamma, and aggressive overwriters, into and post-halving, have effectively threw in the towel on expectations of higher bitcoin prices," Grant said.

The cryptocurrency derivatives trader pointed out how the market went from seeing December 2024 bitcoin calls at a strike-price of $100,000 as a 50% delta instrument, to now considering call options with a strike price of $75,000 to have the same level of sensitivity (50% delta).

The shift suggests traders are placing more importance on options with a lower strike price, possibly because they believe bitcoin is more likely to reach $75,000 than $100,000 by year end.

Price drop after the bitcoin halving

Grant added that investors waited too long to sell their bitcoin when the market prices were high before the halving event, and as a result, missed the chance to make profits because the market prices dropped afterwards.

Additionally, he said there has been a rush of traders trying to sell options contracts before they expired because the prices for those contracts were much higher before the halving, particularly those that bet on bitcoin reaching $100,000 by December 2024.

"Hodlers of bitcoin appeared late to cash in on cyclically high vols pre-halving and the rush for the exits out of fat premiums that saw those same December $100,000 options go from 20% of spot to now well under 10%, as a representative heuristic," he added.