The crypto market is feeling the pressure, with both major and altcoins experiencing significant sell-offs, and traders are responding by seeking safety over upside gains. In particular, the demand for downside protection has surged.
ETH’s 25 delta skew for both the 7-day and 30-day options has sharply dropped to -15% and -6% respectively, signaling a significant shift in sentiment,according to crypto options platform Derive.xyz.
“This trend points to a strong demand for puts, with traders betting on further downside movement, and less interest in calls, which offer upside exposure”, said Nick Forster, founder of Derive.xyz. “The focus is now on protecting portfolios amidst the ongoing rout in the markets.”
This behavior is a direct response to the continued volatility and uncertainty, especially in the wake of large institutional BTC ETF outflows. In the past few days, we’ve seen significant net outflows including -$1.14 billion on February 25 and -$540 million on February 24. These outflows suggest that institutional investors are increasingly pulling their funds, which is adding to the selling pressure across the crypto space.
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“The fear is that this could create a negative feedback loop, where continued selling drives more selling, further driving prices lower,” said Forster.
He forecast that there was 44% chance that BTC will settle below $80K by the end of June, up from 25% just a week ago. The probability of BTC hitting $150K by June 30 has decreased significantly, now standing at 3.5%, down from 9.5% last week.
The likelihood that ETH settles below $2K by the end of June has risen to 30%, up from 23% last week, while the probability of ETH exceeding $4K by the end of June has halved, dropping from 14.5% to just 6.5%. This is according to forecasts from Derive.xyz.
ETH’s 7-day ATM implied volatility (IV) has fallen from a high of 84% earlier in the week to its current level of 65%, signaling a temporary stabilization of volatility. However, Forster said he anticipates that volatility could increase again around the upcoming FOMC meeting on March 19, where the Federal Reserve’s decisions may affect market sentiment.
ETH Pectra upgrades forecast to raise volatility
Furthermore, with the delayed rollout of ETH’s Pectra upgrades now scheduled for April, we could see an uptick in volatility as traders react to new developments surrounding scalability improvements and changes to network mechanics in Q2.
BTC volatility has also broken out of its previous range, currently sitting at 50% after hovering between 40-45% for weeks. This suggests that as institutional flows remain uncertain, BTC may experience more volatile swings, and we expect it to remain in this heightened volatility range for the near future.
As the market continues to react to these ongoing pressures, traders are flocking to safer positions, including hedging against further downside. “We expect to see continued uncertainty, but also opportunities for those who are positioning themselves wisely in anticipation of the next moves,” said Forster. “The situation remains fluid, and we will continue to monitor developments closely.”
