Traders Rush Into Bitcoin Options as Implied Volatility Drops, Is a Big Move Coming?

As the broader crypto asset market takes a breather following its recent rally beyond a $3 trillion market capitalization, traders are increasingly seeking leverage through options contracts on Bitcoin and Ethereum.

This surge in derivatives activity comes as both BTC and ETH prices consolidate in a narrow trading range, with Bitcoin holding between $94,000 and $95,000 during the same period.

The tight price action is reflected in falling implied volatility (IV) levels. Bitcoin’s 7-day IV dropped from 53% to 38% midweek, while the 30-day IV declined to 43%, down from 50%.

Ethereum’s volatility metrics mirrored the trend, with 7-day and 30-day IV retreating from 74% to 61% and 69% to 63%, respectively. This declining volatility is creating what some analysts describe as a low-cost environment for leverage, prompting traders to take advantage of options pricing dynamics.

Options Traders Favor Bullish Exposure Despite Diverging Sentiment

Dr. Sean Dawson, head of research at Derive.xyz, noted a strong bias toward bullish positioning among options traders on the platform. Dawson said:

A staggering 73% of all BTC options premiums are being used to buy calls, with Ethereum seeing an even higher percentage at 81.8%.

According to Dawson, calls are outpacing puts by a 3:1 ratio for Bitcoin and 4:1 for Ethereum on Derive. However, he cautioned that Derive activity may not fully reflect sentiment across the broader market.

Options data from Deribit, a major crypto derivatives exchange, indicated a more balanced positioning, with normalized delta skew suggesting mixed sentiment.

While Derive users appear to be positioning for upward price movement, other venues reflect more hedged strategies. Still, Dawson maintained that in the absence of any major shocks, BTC and ETH could remain near current levels through the end of May.  Dawson wrote:

In terms of price predictions, the outlook for BTC remains stable, but the likelihood of a downside is becoming more bullish. The chance of BTC settling above $110K by May 30 remains at 11%, while the likelihood of BTC dropping below $80K has decreased from 11% to 8%. For ETH, the chance of it settling above $2,300 by May 30 remains at 9%, with the chance of it falling below $1,600 has dropped from 24% to 21% in the last 24 hours.

Bitcoin On-Chain Data Shows Strengthening Fundamentals

In parallel to the derivatives market activity, on-chain indicators suggest strengthening investor confidence. A CryptoQuant analyst known as Yonsei Dent highlighted renewed momentum in Bitcoin’s Market Value to Realized Value (MVRV) ratio.

As Bitcoin’s price recovered to $94,000, the MVRV ratio rose to 2.12, nearing its 365-day moving average of 2.15. According to Dent, this implies that holders are currently sitting on an average unrealized gain of approximately 112%, a level that has historically aligned with strong market positioning.

Dent added that if the 30-day moving average of the MVRV crosses above the 365-day trend in what is known as a “golden cross,” it could act as a confirmation of resuming bullish momentum.

Such patterns have preceded significant rallies in previous cycles. However, Dent also emphasized the importance of continued observation of the MVRV trajectory to evaluate the sustainability of the trend.

Featured image created with DALL-E, Chart from TradingView