As the war in Iran continues, Bitcoin options have indicated the fear of traders

Main Receptors:

Bitcoin traders are being cautious as higher oil prices and Middle East tensions have fueled inflation and stalled US interest rate cuts.

The $254 million in outflows of the spot Bitcoin ETF is relatively small, but options markets are showing heavy hedging.

The price of Bitcoin (BTC) failed to recover the $75,000 level on Tuesday and settled around $70,000 during Friday's trading session. The decline marked two days of net outflows from U.S.-listed Bitcoin spot exchange-traded funds (ETFs), reversing the trend of the past seven days. Traders are now wondering if institutional investors are turning bullish, especially as the US stock market continues to show signs of weakness.

Bearish sentiment in global markets is weighing on Bitcoin as the S&P 500 falls to a six-month low. Even gold, traditionally used as a hedge, saw a 10% sell-off in three days. As the U.S. and Israel-Iran war sparks a broader movement toward risk aversion, Bitcoin derivatives data now reflects rising fears among traders.

The premium for put (sell) Bitcoin options was nearly 2.5 times that of the same call (buy) instruments on Friday, indicating increased demand for neutral-to-bear strategies. The first increase in levels came on February 27 after Iran rejected a deal to dismantle its key nuclear facilities and export its enriched uranium.

Traders are frustrated with Bitcoin's 17% lag behind the S&P 500.

To ensure that the increased demand for put options is effectively used for downside protection, one should evaluate the delta skew parameter. With market makers fearing threats of a recent Bitcoin price correction, put options tend to trade at a premium of 6% or more relative to equivalent call instruments. Conversely, periods of bullishness push the indicator below -6%.

Bitcoin options delta skew (put-call) stood at 16% on Friday, which means that professional traders are not comfortable holding the $69,000 level. Far from the high levels of panic seen in late February, current conditions reflect the anxiety that has driven prices down 21 percent in three months, while gold and U.S. stock markets have been relatively stable.

While Bitcoin successfully defends the $70,000 level, traders are unhappy with its 17% underperformance relative to the S&P 500 over three months. After all, the recent rally to $75,000 on Tuesday failed to move the needle in Bitcoin options markets, which is a strong indicator that traders are overly cautious.

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The worst possible scenario could be associated with rising energy prices. WTI oil prices have been above $94 since March 12, a 50 percent increase over the previous month. Disruptions to oil and gas production and logistics in the Middle East will have an expected negative impact on economic growth and limit the ability of the US Federal Reserve to cut interest rates due to inflation.

A new analysis by Oxford Economics shows that rising fuel prices are expected to push consumers back into spending. Analysts warned that US manufacturers that depend on imports would also be affected, which could lead to further price increases and “absolute shortages of some products,” according to Yahoo Finance.

A net outflow of $254 million in two days may not be a sign of a reversal of institutional investors' doldrums, but traders are not convinced that Bitcoin will hold above $68,000. Trader sentiment, largely due to worsening macroeconomic conditions and the instability caused by the prolonged war, has led to increased demand for lower hedges using derivatives.