Bitcoin Options Market Reduces Risk Hedging – Are New Highs in Sight?

The U.S. jobless claims report released on September 19 further boosted investor sentiment, with weekly claims falling to a four-month low of 219,000, down from a peak of 250,000 in July. While still quite high, the decline is an improvement. Stephen Innes of SPI Asset Management told Yahoo Finance that the Fed's focus "has now shifted decisively to the labor market," with inflation relatively stable at 2.5%.

In response to these developments, U.S. stock markets also performed well, with the S&P 500 reaching a record high on September 19. Fed Chairman Jerome Powell reassured investors, saying that "the U.S. economy is in good shape," and the rate cut was "a sign of confidence, not panic." Powell also explained, "The time to support the labor market is when it is strong, not when layoffs are starting."

However, despite these macroeconomic changes, some investors believe that the upcoming US presidential election in November could have a more significant impact on the global economy. Billionaire Ray Dalio told CNBC that the election “highlights the problems with the ability of society to function smoothly.” Dalio avoided endorsing any of the major party candidates, instead calling for “moderates to unite […] to enact great reforms.”

Dalio expressed concern about the prevailing “win-at-all-costs mentality,” warning that it could lead to the losing side “not accepting” the election results. While the political debate has focused on topics such as abortion, immigration, and climate change, Dalio noted that voters’ top concern remains the high cost of living, according to national polls.

Given the Biden administration’s negative stance on the cryptocurrency sector, it’s understandable that Bitcoin derivatives traders are reluctant to become bullish. During a House subcommittee hearing on Sept. 18, Arkansas Rep. French Hill accused the SEC of injecting politics into its regulatory approach, leading to “uncertainty and confusion.”

To assess whether traders are gaining confidence in the $62,000 support level, it is important to analyze the Bitcoin futures funding rate. Perpetual contracts, often called inverse swaps, include a built-in funding rate that is reset every eight hours. A positive funding rate typically indicates higher demand for borrowed funds from buyers (long positions).

From Sept. 18 to 19, the Bitcoin 8-hour funding rate remained relatively stable at 0.005%. This is equivalent to 0.5% on a monthly basis, which is typical for a neutral market. While this represents a significant change from the negative rates seen on September 14, the current rate shows that retail traders are still hesitant to take bullish positions on the price of Bitcoin.

To determine whether this situation was unique to Bitcoin perpetual futures, it is important to look at demand in the BTC options market. The put to call volume ratio measures the balance between demand for put (sell) options and call (buy) options. Typically, during periods of uncertainty, demand for protective put options increases, causing the ratio to exceed 1.0.

On September 19, the Bitcoin put to call volume ratio fell to 0.54, indicating that call options outweigh put options by 86%. This is a sharp change from the previous two days, when the ratio reflected balanced demand between calls and puts. Ultimately, while Bitcoin traders may be hesitant to take leveraged long positions, the reduced demand for downside protection suggests that traders are relatively comfortable with the $62,000 support level.