Key Derivatives Data Show Crypto Investors Are Finally Betting on a Rally

The past few months and years have seen derivatives become increasingly important to crypto. This is largely due to the introduction of more institutional-centric fund managers, which can use vehicles like futures and options to hedge risk and maximize profits.

As a result, the data the crypto derivatives markets provide have become increasingly important to analysts.

With options data showing that an increasing number of traders are betting on a rally, the bull case that many are touting may be validated.

Crypto Options Investors Are Betting on a Rally

As Bitcoin has recovered over the past few days, investors have become increasingly bullish on the asset. So much so that derivative tracker Skew.com recently noted that BTC options traders are currently “turning bullish.”

They noted that the volatility skew of the options market, which effectively shows if options “writers” is bullish or bearish, has “collapsed to flat” after trending positive for the past month.

“Short term skew has collapsed to flat in the last few days as bitcoin options traders turn bullish,” Skew.com wrote in reference to the chart seen below.

Chart of Bitcoin options skew from Skew.com, a crypto derivatives tracker and platform

It isn’t only options indicating that Bitcoin derivatives traders expect upside.

Also according to Skew.com, the crypto futures market has also been starting to show signs of buying activity.

The basis of BitMEX’s BTC market, which is how much people are paying for one Bitcoin over Coinbase’s price, has started to trend positive. This suggests the presence of more aggressive buyers than sellers.

There Are Reasons to Be Bullish

There is a confluence of purportedly valid macroeconomic and technical reasons why there are so many traders bullish on Bitcoin.

Matt D’Souza — CEO of Blockware Mining — recently identified four such reasons why the demand for BTC will soon increase, which should correlate with higher prices assuming consistent market supply. They are as follows:

  • There is growing geopolitical unrest: The U.S. and China are duking it out again, this time over Hong Kong democracy. The mainland Chinese government proposed a law that some say erodes the autonomy of the region. The U.S. is threatening sanctions and other restrictions should the law be implemented. As a result, the yuan has sunk, boosting Bitcoin’s opportunity to act as a hedge. Jeff Dorman of crypto fund Arca said:

    “In Spring/Summer 2019, the Chinese Yuan fell to all-time lows vs the USD, and contributed greatly to BTC appreciation. Conversely, when the Yuan strengthened in Fall 2019, BTC tumbled. Guess who’s back to all time lows?”

  • Negative interest rates continue across top economies: Negative interest rates have continued in the world’s top economies. Bitcoin stands to benefit from this because it offers no yield over negative rates.
  • Central banks continue to print money to save the economy: To respond to the ongoing recession, central banks and governments have continued to print trillions upon trillions of dollars. Bitcoin’s scarcity allows it to appreciate over fiat money.
  • Bitcoin is continuing to become a payment system over time: Due to developments with the Lightning Network and corporate adoption, Bitcoin is becoming a payment system.

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