Bitcoin Options Traders Still Hungry for Upside But Funding & Leverage Goes Down

2021 has started on a highly volatile note.

We entered into this year at around $28,900, which took us to $33,300 on Jan. 2nd only to see a drop to $30,170.

The very next day, just a few hours later, Bitcoin price BTC 3.58% Bitcoin / USD BTCUSD $ 39,300.39
$1,406.953.58% Volume 24.3 b Change $1,406.95 Open $39,300.39 Circulating 18.78 m Market Cap 737.93 b 12 h Genesis Records 13 Consecutive Quarter of Growth, Reports Rotation Out of BTC into ETH While DeFi Attracts Funds 12 h $162 Billion Asset Manager Files for a Crypto Basket ETF 14 h Grayscale Hires its Global Head of ETF After SEC Chair Pours Cold Water on Physically-backed Bitcoin ETF made yet another all-time high at around $34,820 on Coinbase.

During this time the funding rate on the exchange went almost haywire.

The funding rate keeps the price of the perpetual swap contracts in line with the underlying asset. While a negative funding rate means shorts pay longs, a positive funding rate means longs pay shorts.

And if you are holding an open position in these periodic fundings, you will either pay or receive funding.

Following the upside, we had a bloody Monday that saw BTC having a 20% drop, the highest since the March sell-off. The price of Bitcoin went down to $27,685 on Coinbase before going back above $32k a couple of hours later.

“It's all about leverage,” said trader and economist Alex Kruger on the correction. “Things were borderline yet OK, until traders started buying the initial dip on leverage. They then continued buying on leverage all the way down, until they all got liquidated on the 30K break.”

This of course took care of the funding rates, as per Viewbase.

Estimated leverage ratio across exchanges is also decreasing as per data source CryptoQuant, which means derivatives traders are uncertain about Bitcoin’s next move.

Meanwhile, options traders are still not ready to calm down, it seems. As per data source Skew, the volatility skew hasn’t come down despite the decline.

“In options markets, skew is the relative richness of put options vs call options, expressed in terms of implied volatility.”

skew hasn't repriced despite sudden #bitcoin sell-off, options traders still hungry for upside pic.twitter.com/UWg871Nqp4

— skew (@skewdotcom) January 4, 2021

Today, BTC is hovering around $32,000 and $30,000 and this consolidation is expected to continue for some time before BTC rips higher again. This consolidation meanwhile offers altcoins an opportunity to rally.