Cryptocurrency Derivatives Series: Bitcoin Reclaims $7.5k But Flirts With Stiff Resistance – Options Analytics To Hedge

Of late, the bitcoin’s short positions have been liquidated worth over $10 million and the underlying price trend has been flirting with the stiff resistance zone. The tight trading zone is observed but with the risk-on sentiment is also visible at this juncture.

Yes, no doubt, Bitcoin price has bounced back to $7.5k areas in major exchanges but struggling to gain momentum at this resistance zone and the stiff resistance zone is at $7,400 - $7,730 levels.

However, what has been impressive is that resounding resurgence of 94% just a month and a fortnight or so, and rallying 6% to $7,150 within the spur of the moments. Well, bitcoin price managed to stabilize and bounce back from the recent lows of $3,858 levels to the current $7,727 level (while articulating) with the intensified buying interests despite the struggling financial markets and economic slowdown across the world owing to the deadly pandemic covid-19. 

What Drives The Upside Price Traction: Technically, BTCUSD (at Coinbase) has shown upswings in the minor trend ever since the hammer pattern has occurred at $5,037 level (refer 1st chart). On a broader perspective, the pair has risen above 100-EMAs and retraced 23.6% Fibonacci levels of the Dec’2018 lows and all-time highs in Dec’2017. Please be noted that from April'16, the BTC has spiked from $414 to the all-time highs of $19k, currently, trading decisively at $7.5k levels, which is still a mammoth 1,660% rallies ((refer 2nd chart).

Based on our analytical thought for the genuine driving forces of such bullish interests in bitcoin prices, we get engulfed between quite a few considerable drivers, are the prudent investors-class clustering into Bitcoin as a safe-haven sentiment? Is bitcoin continue to carry digital-gold narrative? Fundamental forces like block-halving event driving the price? Or Is this time of evolution for the global currency system? 

We reiterate, it seems that bitcoin’s hash rate has recovered ahead of halving event, showing a clear upwards trend. In addition, the relative and absolute mentions of gold in headlines discussing Bitcoin have reached all-time highs. The digital gold narrative saw serious momentum from mid-December to early February 2020. After falling at the beginning of the month, the digital gold narrative has once again drawn significant interest as the broader economy has faltered in the wake of coronavirus. Journalists’ mentions of Bitcoin in relation to gold is nearing an all-time high.

Options Analytics: Put/call ratio is below 0.8 (precisely at 0.73 levels) which indicates the obligations of buying underlying security (i.e. bitcoin) significantly outpaced those with selling obligations (refer rd chart).

The put/call ratio has been a conducive tool and effective measures of underlying market sentiment for the forecasting future market trend. The put-call ratio emphasizes the difference in trading volume between puts and calls. 

Most importantly, please also be noted that there is considerable divergence between ATM IVs and RVs (refer 4th chart), we foresee IV is likely to spike in the days to come which is conducive for the call holders. Hence, it is prudent to hedge the potential upside risks in the underlying price. We come up with the suitable hedging strategies in the upcoming posts. Courtesy: skew & tradingview