Crypto Traders Remain Cautious About Downside Risks in Bitcoin, Ether; SOL Stands Out

Options tied to bitcoin and ether show a bias for puts, according to QCP Capital.

Options markets are showing a preference for puts over calls in bitcoin and ether, indicating traders’ concerns about downside risks in the two cryptocurrencies.

Prices for bitcoin (BTC) and ether (ETH) rose almost 10% from Friday's lows amid bullish signals from key order book metrics and expectations for a Federal Reserve interest-rate cut next week.

However, traders remained concerned that prices were set to show weakness in the short term, a message conveyed by options-based risk reversals in bitcoin and ether.

A positive risk reversal suggests that call options are more expensive than puts, indicating bullish sentiment in the market, while a negative figure suggests the opposite. Call options allow the buyer to profit from or hedge against price rallies; puts offer downside protection.

According to Singapore-based QCP Capital, options trading on Deribit showed a bias for puts.

"Given the speed of last week's dip, the market is still very cautious about downside risk," QCP's market insights team said in a Telegram broadcast. "Risk reversals until October are still skewed towards puts in both BTC and ETH."

Traders flocked to put options on Friday after a weak U.S. nonfarm payrolls (NFP) print revived recession concerns, leading to risk aversion in financial markets.

"NFP failed to excite markets. Fast money continues to add to Puts buying 1week $49-$53k Puts when BTC

According to Stewart, recent options market flows showed concern that BTC could drop to $50,000 or even $40,000. At press time, the biggest cryptocurrency by market value was priced around $57,000, CoinDesk data showed.

The cautious sentiment could be linked to historical data, which shows that recessions and risk aversion tend to follow the start of a Fed rate-cutting cycle. The central bank is widely expected to cut rates by 25 basis points next week.

Price rallies could be short-lived until the Fed meeting, according to Alex Kuptsikevich, senior analyst at The FxPro.

"In our view, caution and a tendency to sell growth will prevail in the market, at least until the release of U.S. inflation data on Wednesday. This could continue until the Fed's interest rate decision on September 18th," Kuptsikevich said in an email.

SOL seen as relatively resilient

Market participants expected Solana's sol (SOL) to remain relatively resilient, outperforming ether in the near-term.

SOL's one-month options skew, another measure of demand for calls relative to puts, crossed above zero early Tuesday, according to Amberdata. Meanwhile, ether's one-month skew hovered near -2%, exhibiting a bias for put options.

"Traders are making significant moves to protect downside risk in Ethereum, while simultaneously showing appetite for upside potential in Solana. This divergence paints a picture of a market hedging its bets," Kristian Haralampiev, structured products lead at Nexo, told CoinDesk in an email.

"Adding to the intrigue, Ethereum's volatility index remains notably elevated compared to Bitcoin's, hinting at potential turbulence ahead for ETH," Haralampiev said.

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EDITED BY

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team. A markets veteran, he began covering crypto in 2017. Follow him on Twitter at @godboleOmkar.

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