Bitcoin’s options market has flipped bearish for the short term, as demand rises for ways to hedge against further sell-offs in the spot market. 

The top cryptocurrency by market value fell to $17,640 earlier Wednesday, the lowest since Nov. 29. Prices later rebounded somewhat and bitcoin was last seen changing hands near $18,300, according to CoinDesk 20 data. 

Prices have declined by $1,000 in the past 24 hours, taking out crucial technical levels and triggering fears of a deeper decline in the short run. That’s evident from the increased demand for put options highlighted by a positive turn on the one-week put-call skew. 

Bitcoin: one week, one-month put-call skews
Source: Skew

The gauge measuring the value of short-dated puts relative to calls has risen from -0.20% to 15% in the past 24 hours, according to data source Skew. Essentially, short-dated puts are now drawing higher demand (or prices) than calls. The one-month put-call skew has also recovered from -21% to -7%, again reflecting a pick up in the hedging demand for puts. 

The majority of the activity has been concentrated in $17,000 puts, and $15,000 puts expiring this month.

“Over 300 contracts of $17,000 put with a notional value of more than $5 million have been traded on Deribit since midnight UTC,” said Shaun Fernando, head of risk and product at Deribit, the biggest crypto options exchange by volume and open interest. 

According to Matthew Dibb, CEO of Stack Funds, put options at $15,000 and $16,000 strikes have also seen increased purchases over the past week. “Investors appear to be hedging before the year is out,” he said. 

However, the three- and six-month skews remain strongly in the negative territory, implying a bullish longer-term outlook. 

Technical charts, too, indicate scope for an extension of the pullback from bitcoin’s recently reached record price of $19,920. 

According to Ray Youssef, CEO of peer-to-peer marketplace Paxful, $18,500 was a key support level, and its violation has opened the doors for further declines to $17,300. 

Bitcoin daily chart
Source: TradingView

Bitcoin’s move below $18,500 has marked a downside break of the triangle pattern as seen on the daily chart. The 14-day relative strength index is now on the verge of crossing into a bearish territory below 50.

Downside may be limited to $16,000, a level bitcoin nearly tested on Nov. 27 before turning higher to reached a record high of $19,920 on Dec. 1. “We believe there is strong support that should hold around $16,000, and, if so, it sustains its bullish uptrend,” Dibb said. 

Bitcoin has seen several pullbacks of more than 20% during previous bull runs that didn’t break the upwards trend. At the current price of $18,200, bitcoin is down just 9% from the recent high of $19,920. 

According to market analyst Joseph Young, the current bull run is different from the one seen three years ago. While the cryptocurrency could see more protracted periods of consolidation and decent pullbacks, “that just makes bitcoin more healthy in the longer run,” he tweeted

That said, the market may be shaken if there is negative news about the financial health of the business intelligence company MicroStrategy, which has adopted bitcoin as a reserve asset.

Bitcoin’s price slide of the past 24 hours has happened alongside a decision from Citi to lower the recommendation on MicroStrategy to “sell” from “neutral.” An analyst cited CEO Michael Saylor’s “disproportionate focus” on bitcoin as a potentially troubling trend for the business intelligence company.

Also read: Citi Analyst Chides Saylor’s Bitcoin Focus, Cuts MicroStrategy to ‘Sell’

“The concerns are that MicroStrategy’s recent foray into digital asset space will raise questions from regulators about its purchasing spree and also, some shareholders may voice their discontent about the move,” Denis Vinokourov, head of research at the London-based prime brokerage Bequant, told CoinDesk. “If indeed the company’s underlying position is much less rosy and the company’s financial health comes into question, it is the bitcoin holding that will be forced to be sold.”

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