Bearish sentiment continues to dominate the Bitcoin market as the leading cryptocurrency reports its fifth straight monthly loss. Currently, prices are consolidating below the $70,000 level as market bulls struggle to force a decisive break above the resistance zone.
Amid this volatile price action, data from the Bitcoin options market shows that investors are starting to expect less volatility, but still recognize the market’s fragility.
Bitcoin volatility expectations are falling, market panic is fading
In Post X On February 20, Glassnode released its weekly Bitcoin options market update, analyzing trader behavior and sentiment in relation to current market conditions. The market intelligence firm reports a noticeable shift in volatility expectations, which is helping to alleviate the currently heightened bearish sentiment.
At-the-money (ATM) implied volatility across maturities has dropped significantly to around 48%, a significant decline from recent highs, according to Glassnode analysts. Since ATM IV reflects expected market movement, the decline suggests that investors are no longer betting on an immediate price crash.
In particular, this change is reinforced by changes in DVOL, an indicator used to measure aggregate expectations for implied volatility. After initially jumping during the market liquidation in delayed January and early February, DVOL has dropped by about 10 volatility points over the past two weeks, signaling that demand for extreme hedging is waning.
Moreover, the short-term volatility risk premium (VRP) became positive. Earlier this month, the weekly VRP fell to a deeply negative level of -45, which was due to the fact that realized volatility significantly exceeded suggested values. Since then, implied volatility has increased while realized volatility has leveled off, restoring the premium to short-term options.
Together, these indicators suggest that panic pricing is resetting and expectations for excessive and volatile moves have declined.
Bitcoin traders remain vigilant for declines
Despite cooling expectations for volatility, other indicators show that investors are maintaining a defensive market position.
For example, the put slope, which measures the relative demand for downside versus upside exposure, remains quite elevated despite the move away from extreme hedging. After bottoming out near 7 volatility points, the weekly 25 delta swing rebounded towards 14 vol. The recovery indicates that while extreme fear has subsided, demand for insurance against economic downturns remains high.
Audience flow data also tells a similar story. Option sales accounted for two-thirds of last week’s options activity, and outright purchases of puts accounted for about 34% of total flow. The dominance of protective positions suggests that market participants are not entirely convinced that the correction is over.
Overall, the options market is signaling a more measured outlook, where expectations for immediate disruption have waned but investors are taking hedging actions to protect against the risk of further downside. At press time, Bitcoin is trading at $67,628, having increased by 0.92% in the last 24 hours.
More data from Glassnode also shows that dealers are offering essentially compact gamma in a wide price range from $70,000 to $58,000, a positioning structure that could augment selling pressure if Bitcoin widens losses. Conversely, the high concentration of gamma rays around $75,000 suggests positioning for a potential bounce.
Featured image from Flickr, chart from Tradingview
