ETC Group analyst: The inverted volatility term structure of BTC indicates extreme bearish signals in the options market

ChainCatcher news, according to The Block, analysts say that as Bitcoin's price has recently pulled back, traders' demand for downside protection has increased, which is reflected in the rise in the number of put options.

According to data from Deribit, the put/call ratio of Bitcoin options open interest expiring on Friday has risen above 1, which is seen as a bearish signal for the market. A ratio above 1 means that the number of put options traded significantly exceeds that of call options. This indicates that more investors are betting on or hedging against a price decline rather than a price increase.

"The increase in Bitcoin options open interest is mainly due to the rise in open interest of relatively bearish put options, which aligns with the recent price pullback of the asset, as Bitcoin options traders have increased their downside bets and hedges. The surge in the put/call volume ratio and a one-month 25-Delta skew indicate a significant increase in demand for downside protection," ETC Group wrote in the report.

The report also noted that the implied volatility of Bitcoin options has increased during the recent decline, with the current implied volatility of at-the-money Bitcoin options for one month being around 50.5%. "The term structure of volatility is now also inverted, with the implied volatility of short-term options significantly higher than that of long-term options, which is often a sign of extreme bearishness in the options market," ETC Group analysts added.