Does the cryptocurrency market have the strength to break the bullish trend? QCP Capital weigh in

Cryptocurrency market conditions have changed drastically; According to an analysis by QCP Capital, the options market in its current state makes the crypto industry look like a major crisis like the closing of cryptocurrency exchange FTX after filing for bankruptcy never happened.

Trading Desk QCP Capital published Notes on the crypto industry, revealing some key points to keep in mind for the coming months.

The crypto market is coming back to life

QCP analysis indicates that Bitcoin (BTC) risk reversals have traded in positive territory over the past week, telling us that calls (buy) have been more expensive than puts (sell) since 2021 across multiple time periods.

This is unusual for the sector as Bitcoin usually has a persistent selling skew, mainly due to mining/treasury hedging activity. The chart below illustrates this market behavior and the bullish sentiment affecting the options sector.

Putting skew pushes the put price higher and the calls lower. This difference in pricing between options is called a skew and, under normal circumstances, puts the trade in higher volatility than calls precisely because investors are hedging some of their bullish positions.

For the trading desk, this means that sentiment in the cryptocurrency market has turned from bearish to bullish, a culmination of what has been happening in the overall market and the slight recovery in the economy.

Bulls hearts may break on Valentine’s Day

Ethereum (ETH)(IV) implied volatility, which represents the expected volatility of a stock or currency over the life of the option, has decreased, indicating complacency as market prices shed fears of a price crash, according to the analysis.

Excitement in the market can be gauged by the amount of “Fear of Missing Out” (FOMO) that has set in, with many chasing prices and highs by buying high delta calls and buying into the spot market over the past week.

With the upcoming “Big Bad” FOMC meeting, the trading desk expects the market to be more cautious and conservative.

According to QCP, the next potentially problematic date will be February 14, when the next CPI report will be released, which will likely “break the heart of the bulls.”

For QCP, this is the same scenario that the market witnessed in December. Likewise, the price may experience a breakout on the upper side, which is characterized by a very violent and sharp move.

Bitcoin is currently trading at $23,200 and seems to be paving the way to conquer new levels. It is up 0.7% in the last 24 hours and 10.3% in the last seven days. Bitcoin is trying to break the next hurdle which is the $24,400 level.

Ethereum is trading at $1,600, up 0.3% in the past 24 hours, with sideways price movement. The next wall of resistance is at $1,691, an area the bulls have not visited since September 2022. Ethereum has gained 3.8% in the past seven days.

Cover image from Unsplash, charts from Tradingview.