Bitcoin (BTC) Market Sentiment Flips: Risk Reversals Show Bullish Shift

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The Bitcoin (BTC) options market has seen a sudden shift in sentiment, with risk reversals trading into positive territory for the first time since 2021. 

This means that calls are now more expensive than puts across multiple tenors, a highly unusual occurrence that is typically not seen in the Bitcoin market.

QCP Capital, a full-suite crypto trading firm, today tweeted that the options market appears to be showing signs of a sudden shift in sentiment. 

2 / The following are some key observations:
1. BTC risk reversals traded into positive territory (Calls more expensive than Puts) across multiple tenors last week for the first time since 2021.

This sudden flip from bearish to bullish sentiment is being seen as a microcosm of the larger changes happening in the macro markets and is a clear indication of the volatility and unpredictability of the current market conditions.

This development is being closely watched by market analysts and investors as it could potentially signal a turning point in the Bitcoin market.

In the tweet, the investment firm stated that the market conditions are vastly different from the bearishness seen in Q4 2022 and that the current state of the options market makes it seem as though the recent FTX incident never occurred.

Unprecedented Shift in Bitcoin (BTC) Options Market

According to QCP Capital, one key observation is that BTC risk reversals have traded into positive territory for multiple tenors. This is highly unusual, as Bitcoin typically has persistent Put skew due to miner and treasury hedging activity. 

Additionally, QCP Capital noted that ETH implied volatility has fallen in general, indicating a sense of “complacency as the market prices out the fear of prices collapsing.” However, this could change in light of the upcoming Shanghai Upgrade, which is set to unlock more than 16 million ETH.

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On the trading front, QCP Capital reported that it is seeing signs of FOMO on the trading desk, with many traders buying high delta calls and going long spots in an attempt to chase the top side. 

However, the investment firm warned that the upcoming FOMC on February 1st could cause the market to become more cautious, as the market has been signaling to the Fed that talk is cheap.

Furthermore, QCP Capital noted that the next CPI, set to be released on Valentine’s Day next month, could potentially break the heart of the bulls. 

The Cleveland Fed’s inflation Nowcast model is currently tracking at a whopping 0.58% M/M, which could officially be 0.6% M/M if the forecast is accurate. This is a significant number that throws a curveball at the market’s optimistic view on inflation.

Lastly, QCP Capital expressed concern about the positive divergence seen in the USD and Gold prices, which have been leading and driving crypto prices. 

The USD is starting to show massive positive divergence, trading in an ending diagonal pattern, which could lead to a sharp and violent breakout to the topside. As for Gold, the $1890-$1900 support level is crucial and must remain above this level for the crypto uptrend to hold.

12/ Besides Equities, Gold and USD price action have also been leading/driving crypto prices.
What worries us here is that the USD is starting to show massive positive divergence, as price trades in an ending diagonal pattern.

Related Reading | Bitcoin Enters Early Bull Phase Amidst Market Uncertainty, Says CryptoQuant CEO

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