Bitcoin Traders Continue to Short Volatility With No Catalyst Ahead

• Bitcoin traders are shorting volatility at this stage with no near-term upside catalyst ahead in sight.
• The euphoria surrounding spot Bitcoin ETF ends as approval seems far away for now.

As we advance into the second week of August 2023, the world’s largest cryptocurrency Bitcoin (BTC) continues to consolidate around the $29,000 levels. Over the past few weeks, the Bitcoin price has been showing extremely low volatility, last seen during the March 2020 levels.

It seems that Bitcoin is awaiting a catalyst for any further price movement from here. The key indicator to watch out ahead would be the United States inflation data in the form of the Consumer Price Index (CPI). The CPI numbers shall influence Federal Reserve’s next interest rate decision in September next month.

Bitcoin ended the week with little movement, staying within a $200 trading range. Traders are concerned about possible lower levels as bulls struggle to overcome selling pressure near key resistance levels. Currently, the key resistance levels on the upside are $29,250, $29,500, and $30,000. Popular crypto trader and analyst Rekt Capital noted: “BTC continues to reject at ~$29250. As long as that continues, bias favors to lower prices”.

#BTC continues to reject at ~$29250

As long as that continues, bias favours to lower prices$BTC #Crypto #Bitcoin https://t.co/1q5qkhI4ok pic.twitter.com/GAy5oh3TPi

— Rekt Capital (@rektcapital) August 6, 2023

According to Michaël van de Poppe, Monday might bring a potential low for Bitcoin, and he is looking at a target of $28K to buy if the price drops. However, if Bitcoin doesn’t go down to that level, he would consider adding to his long positions if the price breaks above $29.7K.

Bitcoin Traders Continue to Remain Short on Volatility

Several analysts are currently expecting a volatility implosion in Bitcoin after strong consolidation recently. However, there are still some crypto traders who prefer to short volatility, meaning they employ strategies that bet against price fluctuations.

Since volatility is believed to revert to its average over time and higher volatility affects options prices favorably, some traders are expecting significant price swings and contemplating the purchase of BTC call or put options.

These options provide protection against bullish or bearish movements, allowing them to profit from the potential changes. This approach is referred to as the long volatility trade. Greg Magadini, director of derivatives at Amberdata recommends considering a short trade. In a market note, Magadini noted:

Upside volatility likely remains far away unless BTC can take new year-to-date highs. The clearest catalyst for this currently revolves around a BTC spot ETF. I continue to believe the ‘base case’ in this environment is to lean towards the short-vol bias, (in the near term).

Traders often use a strategy called “shorting volatility” by selling or writing call or put options. They prefer this strategy when the measured volatility (both realized and implied) is higher than usual, there are no clear reasons for price changes, and implied volatility is greater than realized volatility.

Right now, the realized and implied volatility are at their lowest levels in years, which means it’s not a good time to sell options or short volatility. However, the other two factors still support this strategy.

Wait for the spot Bitcoin ETF continues

The optimism surrounding the spot Bitcoin ETF filings by BlackRock and other financial players has faded away for now. According to K33 Research’s Vetle Lunde, the trading volume in July was unusually low, leading to what he calls an “anemic” market. However, this period of low activity might be a sign that the market is about to change dramatically.

Lunde suggests that the market could experience a sudden surge of volatility, with potential triggers such as ETF filings, ongoing legal issues, and structural pressures. To prepare for this, strategies like passive long-volume exposure and gradual BTC accumulation are being considered. But Magadini notes that “the fundamental catalyst for volatility, the ETF, is ways away.”

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