The calm days in Bitcoin’s derivatives market seem to be over. Glassnode’s latest report shows that volatility is surging while traders scramble to hedge against downside risk.
Despite record open interest in options, sentiment is turning defensive, with traders loading up on puts and fading rallies.
The picture that emerges is one of caution, not capitulation – a market hedged against fear, waiting for clarity before taking the next major directional bet.
Record Open Interest, But Growing Fear
Bitcoin options open interest recently hit a new all-time high, reflecting unprecedented participation from both institutional and retail traders. Yet beneath this surface-level optimism lies an unmistakable defensive tone. The majority of new positions are puts – contracts that profit when prices fall – signaling that investors are prioritizing protection over speculation.
Rather than selling spot positions, many traders are using derivatives to manage exposure. This shift reflects a maturing market structure where volatility itself becomes an asset to trade. However, as open interest swells, it also magnifies short-term price swings. Dealers managing “short gamma” exposure often exacerbate volatility by selling into dips and buying into rallies to stay balanced, creating sharp, reactive price movements.
The End of the Calm
Until recently, Bitcoin enjoyed an unusually tranquil trading environment. That calm broke following the liquidation event on October 10, which reset the volatility regime. Implied volatility (IV) – the market’s forecast for future price swings – has climbed to around 48 across maturities, compared with 36–43 earlier this month.
Realized volatility has risen in tandem, reaching 44%, meaning the actual day-to-day price movements are now matching traders’ expectations. This convergence between realized and implied volatility signals that the market is pricing in risk more accurately – and abandoning complacency.
Put Skew Shows Persistent Caution
One of the clearest barometers of trader sentiment is the put-to-call skew, which measures the relative cost of downside protection versus upside bets. Glassnode notes that this skew has remained firmly tilted toward puts, even after minor rebounds.
The shift is broad-based, affecting both short-term and longer-dated contracts. This means that traders aren’t just worried about the next few days – they’re hedging further out, preparing for continued instability. Even when Bitcoin briefly rallied 6% from $107,500 to $113,900 earlier this week, call buying failed to materialize. Instead, put volume increased, a sign that traders were “selling into strength” and using the bounce to reinforce their defensive positioning.
Volatility Risk Premium Flips Negative
For months, volatility sellers had enjoyed steady profits, selling options as implied volatility stayed higher than realized moves. That comfortable trade has now flipped. The one-month volatility risk premium (VRP) – the difference between implied and realized volatility – has turned negative, signaling that real market swings are now outpacing expectations.
This reversal forces short-vol traders to hedge actively, increasing demand for options and compounding price fluctuations. The result is a feedback loop: higher volatility prompts more hedging, which in turn fuels further volatility.
Hedging, Not Hope
Glassnode’s premium analysis confirms the same story. At the $120,000 strike, call premiums are being sold into rallies, reflecting traders’ skepticism about sustained upside. Meanwhile, demand for $105,000 puts has surged, showing a preference for downside insurance over bullish exposure.
This pattern underscores a market that’s managing risk, not chasing returns. Traders appear more concerned with capital preservation amid uncertainty about global liquidity, geopolitical tensions, and Bitcoin’s struggle to stay above key support levels.
A Market in Transition
Despite the defensive tone, Glassnode doesn’t interpret the data as outright bearish. Instead, the analysts describe the environment as “a cautious, transitional phase.” High volatility and heavy hedging typically mark late stages of corrections, not their beginnings. Once volatility begins to compress again and traders reduce their protective positions, Bitcoin could enter a more stable recovery pattern.
In other words, fear can eventually become fuel. As downside protection gets priced in and risk aversion peaks, the conditions often align for renewed accumulation.
Outlook
Bitcoin’s options landscape paints a complex picture: record participation, rising volatility, and defensive positioning. These are hallmarks of a market recalibrating rather than collapsing. Traders appear fully aware of macro risks and are managing exposure accordingly, which may actually limit extreme downside moves by distributing risk more evenly across participants.
For now, though, volatility rules. Until the market digests its recent turbulence and spot demand picks up, Bitcoin is likely to remain in this hedged posture – nervous but structurally resilient. Once the air clears and volatility normalizes, those same traders hedging today could become the ones driving the next leg of the recovery.
Read the full report here
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Source: https://coindoo.com/bitcoin-warning-volatility-surges-traders-hedge-confidence-fades/