The Federal Reserve recently announced a 25 basis point reduction in interest rates along with the resumption of monthly purchases of $40 billion in short-term Treasury bills. These measures are expected to enhance liquidity within the financial system, potentially benefiting the market. Financial analysts suggest that these actions may lead to a temporary improvement in the cryptocurrency market. However, due to the Christmas holidays and typical year-end financial closures, liquidity and trading activity in the crypto space usually decline during this period, making it premature to anticipate a strong rally.
Options data indicates concentrated positions in Bitcoin (BTC) and Ethereum (ETH) through the end of December, with Bitcoin’s maximum loss point near $100,000 and Ethereum’s around $3,200. Additionally, a decrease in expected volatility for key expiration dates this month suggests reduced short-term market uncertainty. Analysts also note that the “skew” has remained negative this month, meaning put options are priced higher than call options at the same delta. This is primarily due to the dominance of covered call strategies in a stable market, which suppress call option prices, while recent market weaknesses have increased demand for put options as protection against downward risks.
Overall, the cryptocurrency market remains weak with anticipated liquidity shortages toward year-end. The prevailing trend in the options market points to a gradual decline, although the possibility of sudden positive developments causing short-term reversals cannot be ruled out, albeit with low probability. Financial decisions like these, combined with the year-end period, typically present challenges for investors in the crypto market, underscoring the importance of a cautious approach.
Source: binance
