Bitcoin Price Drop May Be a Bear Trap, Options Market Suggests

• Bitcoin's options market suggests Monday's price drop could be short-lived.
• However, the cryptocurrency remains vulnerable to a sell-off in stocks and increased miner hoarding is a sign the market lacks strength.

Bitcoin is feeling the pull of gravity on Monday alongside losses in the traditional markets. 

At press time, bitcoin is changing hands near $9,080, representing a 2.7% decline on the day. Prices hit a three-week low of $8,910 during the early European trading hours, according to CoinDesk’s Bitcoin Price Index. 

Meanwhile, futures tied to the S&P 500 are down over 2.5% and major Asian and European equity market indices are in the red red, apparently over fears of a second wave of coronavirus infections in China. 

The decline in bitcoin prices, however, could be short-lived, options market data suggests. 

While bitcoin looks to be tracking equities lower, the top cryptocurrency’s put-call volume ratio has risen to three-month highs. At 1.79, the ratio currently stands at the highest value since the markets crash on March 12, according to data provided by crypto derivatives research firm Skew. 

The put-call volume ratio is an indicator of relative trading volumes of put options (bearish bets) to call options (bullish bets). To put it another way, trading volume in put options has been significantly higher than that in calls. 

“A put-call ratio above 1 is considered to be an indicator of a selloff while a put-call ratio below 1 is an opportunity to buy,” as per Investopedia. 

However, when the ratio gets too high (extreme bearishness), the market is considered to be ready for a reversal higher, and when the ratio is too low, the market is considered close to topping out.