Is the market already hedging against the next crypto crash?

Key Takeaways

What clues has the Bitcoin price action given after Friday’s wipeout?

The weekend, and especially Monday, showed that there was some willingness from buyers to catch the dip, but this was too little to drive a recovery. Sentiment remained fearful.

Were market participants hedging against the next crypto crash?

The Put/Call Ratio on OKEX reflected increased call purchases and a short-term bullish sentiment; however, other metrics indicated a reduced speculative interest. Long-term investors remained comfortably in profit.

In the 12 hours before the time of writing, Bitcoin [BTC] fell 4.51% from $115.8k to $110.6k.

Market participants, buoyed by the price move toward the $116k-$117k resistance zone on the 12th and 13th of October, were fearful once again.

Source: Alternative.me

The Crypto Fear and Greed Index fell as deep as 24 on the 12th of October, reflecting deeply fearful sentiment.

CoinGlass data showed that the funding rate fell to negative values on the 11th of October, but has climbed back above zero once again.

Source: Coinalyze

Yet, positive funding alone doesn’t indicate bullish sentiment. The Open Interest (OI) trends on Coinalyze captured the heavy liquidations on the 10th of October, and the hope of a quick recovery seeping into the market over the past couple of days.

Additionally, ETF flows were negative on Monday, again showing near-term bearishness.

Monday, the 12th of October, saw a BTC rejection at the local supply zone, leading to an OI drop of 2.37% in the past 24 hours.

This showed speculative interest remained cool, and traders were not rushing to bid BTC on margin, which could be a wise move to hedge against potential volatility.

Should you hedge against another crypto crash?

The answer is simple for HODLers. Doing nothing is a great option in navigating the markets. Long-term Bitcoin investors need not fear another crypto crash, as their conviction and time horizon are generally very high.

Source: Glassnode

The Bitcoin NUPL remained above 0.5 despite the recent correction, still reflecting that holders were at a profit on average.

It is indicative of mid-stage bull market conviction and was different from the anxiety stage that the metric showed for BTC in March and April.

Traders and shorter-term holders, the ones who manage their portfolios more actively, might want to hedge against further price drops. The $100k-$102k support zone is a vital area on the price charts, technically and psychologically.

Source: Amberdata

The BTC Put/Call Ratio had been at 1.05 on the 11th of October, showing some hedging in the options market with increased put option buys. It reflected an increased demand for hedging on the day, but since then, the ratio has fallen to 0.9.

This implied that the options trading volume flipped bullishly with more call purchases, driving the ratio down.

Source: Glassnode

The estimated leverage ratio dropped sharply in recent days due to a sudden decline in OI across exchanges. This wave of deleveraging, mostly triggered by forced liquidations, signals a reduced appetite for risk in the futures market.

Overall, the indicators suggest caution. Rather than rushing in, traders and investors may choose to wait for clearer signs of recovery. 

A move by Bitcoin beyond $117,000 could begin to restore confidence and signal the potential for further gains.