Bitcoin Drops as Investors Buy $22K and $20K Puts

Bitcoin falls a day after the options market saw increased demand for out-of-the-money or lower strike put options at $22,000 and $20,000.

The leading cryptocurrency was trading at its three-week low of $30,700 at the time of writing, representing a 3.5% drop on the day. The drop has flipped the crucial 50-week Simple Moving Average (SMA) support at $32,250 into resistance.

On Sunday, 500 contracts of the $22,000 put option that expired Dec. 31 changed hands through institution-focused over-the-counter (OTC) desk Paradigm. A similar volume passed the tape for the $20,000 expiring December 31.

Related: Bitcoin Trending Lower With Possible Break from $30K Support

“There was interest in buying BTC puts for December in a significant size,” said Darius Sit, CEO of Singapore-based QCP Capital. “We made the market for most of the major block trades this weekend. There was quite a bit of interest in selling BTC puts in September as well.”

Market makers are always on the opposite side of traders/investors and have a directional neutral portfolio. That essentially means that buyers of the $20,000 and $22,000 bonds that matured on December 31 were investors, most likely adding downside hedges against long positions in the spot/futures market.

A put option gives the buyer the right, but not the obligation, to buy the underlying asset on or before a specified date at a predetermined price. A put buyer is implicitly bearish on the underlying asset, in this case bitcoin.

Overall, the long-term options market is still optimistic. The six-month put-call skew, which measures the cost of puts versus calls, remains anchored below zero. In plain English, longer term calls or bullish bets are priced higher than puts.

Related: Bitcoin Network Sees Fourth Straight Down Difficulty Adjustment

However, the one-week, one-month and three-month put-call skew points indicate a negative bias with bearish prints.

Also read: Why Bitcoin Must Defend $30K

Bitcoin is currently changing hands at the bottom of its two-month trading range of $30,000 to $40,000.

If the $30,000 support gives away, traders who have sold puts for $30,000 in the past few weeks may resort to hedging — a short position in the futures or spot market — leading to a deeper decline.

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