Bitcoin’s next selloff could be amplified by the traders still betting on its recovery

Bitcoin options traders are becoming more defensive even as leveraged futures traders maintain bullish exposure amid persistent spot selling.

An Oct. 19 Glassnode report showed Bitcoin's 25-delta options skew climbing from 5.2% to 8.6% over the preceding week, reflecting a growing premium for downside protection relative to bullish options.

Meanwhile, aggregate funding payments by perpetual futures longs jumped 49.4% to $1.6 million, suggesting continued demand for leveraged bullish exposure despite weak buying activity in the underlying market.

The contrasting positions emerged as Bitcoin struggled to recover from October's selloff. The cryptocurrency traded near $81,300 at press time, more than 2% lower than the previous week.

The divergence leaves Bitcoin exposed to renewed volatility if spot selling persists and leveraged traders are forced to reduce positions, particularly as investors prepare for another Federal Reserve interest-rate decision later this month.

Glassnode's options data show investors are placing greater value on protection against further losses even as Bitcoin's recent price movements have become relatively subdued.

The firm's implied-versus-realized volatility spread shifted from -3.8% to +2.1 % over the week, indicating that volatility embedded in options prices moved above the cryptocurrency's recent realized volatility.

The change reflects a market increasingly willing to pay a premium for exposure to potential future price swings after a period of comparatively restrained trading activity.

At the same time, Bitcoin's 25-delta skew rose 3.4 percentage points, showing bearish put options became more expensive relative to comparable bullish calls.

That shift suggests investors are placing greater emphasis on protecting existing positions against further declines, particularly after Bitcoin's failure to establish a sustained recovery above its late-September breakout levels.

However, the skew reading remains below the upper end of its historical statistical range. The market has become more defensive without reaching the extreme pricing typically associated with unusually elevated demand for downside protection.

Investors have also maintained substantial exposure to the options market.

Glassnode reported that Bitcoin options open interest rose 3.1% to $38.6 billion from $37.4 billion the prior week, suggesting outstanding derivative positions continued to expand despite weak spot market momentum.

Rising open interest, a stronger put skew, and a positive volatility spread point to a market where traders are maintaining exposure while placing greater value on protection against adverse price movements.

That defensive positioning has developed alongside continued deterioration in spot trading conditions.