• Cryptocurrency is experiencing unprecedented volatility, but options traders are observing bullish market signals.
• After the market crash, Bitcoin options hint at good indicators, say traders.
• According to Chris Bae, CEO, and co-founder of EDG, bid-ask spreads are appropriate.

Cryptocurrency is experiencing unprecedented volatility, but options traders are observing bullish market signals in the wake of the turmoil and controversy that engulfed digital-asset lenders and others in the sector.

Chris Bae, the CEO, and co-founder of structured-derivative-solutions provider EDG and a former trader at UBS and Goldman Sachs, is monitoring open interest and options trading on worldwide exchanges.

“It doesn’t suggest that liquidity has thinned dramatically,” Bae said in an interview. “There’s a lot of data that suggests the maturity of the market has progressed and that in the options market in particular, it’s business as normal, to a large degree, when taking into context the environment that we’re in.” According to Bae, bid-ask spreads are appropriate.

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Obviously, the ecosystem has been stretched by a number of hacks, as well as the demise of stablecoin initiatives and the collapse of large crypto hedge funds. In the past few weeks, lenders have exhibited instability, with Celsius Network and Babel Finance banning withdrawals and Three Arrows Capital, a large cryptocurrency hedge fund, experiencing liquidity issues. All of this is occurring against a backdrop of less accommodating monetary policy, as the Federal Reserve and other global central banks are aggressively hiking interest rates to combat inflation.

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Certainly, the market has changed significantly since last year’s bull run. Open interest, or the total number of outstanding contracts, has decreased significantly since its peaks. According to Skew statistics, OI is down slightly more than $7 billion from a record high of over $15 billion in October 2021. Currently, volume is a little below $600 million, but it reached an all-time high of almost $8 billion in October.