Derivatives Sentiment Improves as Bitcoin Rallied to 2-Month High: Bybit Report

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Bybit’s Risk-Appetite Index recorded an uptick, suggesting that some traders have opened perpetual positions to capture any further rallies in spot prices.

The derivatives market is witnessing a change in sentiment, with funding rates and open interest rising. A Crypto Derivatives Analytics report from the trading platform Bybit and research firm Block Scholes attributed this change to bitcoin’s (BTC) latest recovery and move to the upper $90,000 range.

According to analysts, bitcoin’s breakout coincided with rising perpetual futures open interest and higher funding rates for multiple altcoins. This is reflected in futures term structures clustering at similar levels and short-dated options moving toward a neutral volatility skew

Derivatives Sentiment Improves

Before the price rally, BTC traded between $85,000 and $95,000. The breakout into the $97,000 region triggered a surge in open interest past $8 billion across nine major coins. As BTC rallied, the altcoin market was lifted and open interest returned to levels seen at the start of the year when BTC surged to $94,000.

Bybit’s Risk-Appetite Index recorded an uptick, suggesting that some traders opened perpetual positions to capture any further rallies in spot prices. This turn in spot price movement has been supported by flows into altcoin spot exchange-traded funds (ETFs). Both ether (ETH), Solana (SOL), and XRP ETFs have seen multiple consecutive days of inflows over the past week.

As for Bitcoin options, the breakout had little impact on the at-the-market (ATM) volatility levels. While realized volatility spiked towards the end of last week after moving sideways, short-tenor implied volatility has been lower around 22% over the last 12 months. Analysts say it is unsurprising that options market volatility has continued its downward trend, as bitcoin’s price has traded in a sideways chop over the past month.

Will the Positive Change Hold?

Nevertheless, derivatives market conditions are supporting a continuation of the latest bitcoin rally. There are signs of a strong willingness for leveraged exposure, with volatility smiles for shorter-dated options moving towards neutral skew from bearish positions. Also, the market is seeing a seven-day futures trade with a 10% premium over the spot price.

Amid this noticeable shift in derivatives sentiment, there are concerns that BTC hovering around $95,000 would not be enough to sustain the change from bearish to neutral. Although the market is yet to see short-dated volatility smiles fully skew towards calls, historical patterns suggest that bitcoin’s failure to hold $95,000 will trigger a return to the put premium.