Bitcoin Volatility Muted Despite $1.65B Liquidation Event

The crypto market experienced a significant shakeout on Monday as Bitcoin extended its weekend losses. While the top cryptocurrency fell less than 4%, the move was enough to trigger a massive liquidation cascade, resulting in the wiping out of approximately $1.65 billion in long positions and $145 million in short positions, marking one of the largest such events this year. Despite the scale of the fallout, the market’s expectation of future price swings, known as implied volatility, showed little change. Adam Chu, chief researcher at GreeksLive, confirmed to Decrypt that this key metric remains muted, suggesting a lack of panic among traders despite the sharp price movement.

This disconnect between a significant price drop and stable implied volatility is notable. Typically, a sell-off of this magnitude would cause traders to rush for protection, driving up the price of options and, consequently, implied volatility. The fact that it remained subdued indicates that a large segment of the market may view this dip as a temporary correction rather than the start of a sustained bear trend. This calmness stands in stark contrast to the frantic activity in the futures market, where over-leveraged longs were forcefully exited.

Beneath the surface of calm volatility, options traders are actively positioning for further downside in the near term. Experts who spoke to Decrypt reported a significant uptick in put-buying activity following the crash. Sean Dawson, head of research at on-chain options platform Derive, noted a “heightened demand for puts” as fears of continued downward price action worry the market.

This bearish sentiment is quantified by the put-call delta skew, a metric that measures the difference in implied volatility between out-of-the-money puts and calls. Max Shannon, senior associate at Bitwise Europe, highlighted that the 1-week and 1-month put-call delta skew has risen to its highest level since early August. An increase in this skew signals that investors are paying a higher premium for downside protection relative to upside bets, a clear indicator of short-term caution. Shannon speculates that this bearish flow could be driven by “sell-the-news” expectations following the Federal Reserve’s widely anticipated quarter-point rate cut on September 17.

The underperformance of crypto assets compared to traditional havens like gold (XAU) and the S&P 500 (SPX) since late August further underscores this crypto-specific selling pressure. While the S&P 500 and gold have returned 3.68% and 12.41%, respectively, since Fed Chair Jerome Powell’s dovish comments at Jackson Hole on August 22, Bitcoin and Ethereum have posted negative returns of 1% and 3% in the same period, according to TradingView data.

Despite the short-term bearish positioning, the overall market narrative for the medium to long term remains decidedly optimistic. Adam Chu of GreeksLive stated that the market remains “optimistic about the fourth quarter,” with bullish positioning having begun as early as last month. This suggests that traders are viewing the current downturn as a buying opportunity or a temporary setback within a larger upward trend.

Sean Dawson echoed this outlook, projecting that “prices will trend inevitably upwards” over the next three to six months based on options traders’ positioning and bullish strikes. This confidence is rooted in the structure of the options market itself, where demand for calls with higher strike prices in future months indicates expectations of a recovery.

Dawson also highlighted a potential catalyst for a sharper recovery in Ethereum (ETH) relative to Bitcoin (BTC). He pointed out that market makers are currently net short gamma on Ethereum. This technical positioning could force these large players to purchase spot Ethereum if the price begins to rise, creating a feedback loop that accelerates the upward move. This dynamic sets the stage for a potentially more explosive rebound for the second-largest cryptocurrency once the current selling pressure subsides.