Bitcoin, Ether Slide as Protective Puts Draw Demand Amid Sell-Off in FTX's Token

Crypto market leaders bitcoin (BTC) and ether (ETH) shed their relative calm and faced selling pressure early Tuesday as FTT, the native token of cryptocurrency exchange FTX, nosedived to 21-month lows on lingering concerns regarding trading firm Alameda's balance sheet.

At 4:30 UTC, bitcoin traded 4.3% lower on the day at $19,700, while ether changed hands at $1,480, representing a 5.5% decline, CoinDesk data show.

FTX's FTT token tanked 20% to $17, the lowest since February 2021, extending the past week's 13% slide.

Options data showed renewed demand for bearish put options tied to bitcoin and ether. The bearish shift in sentiment perhaps reflects investor fears that the ongoing FTX-Alameda drama may lead to Terra-like crypto collapse contagion.

A call option gives the purchaser the right, but not the obligation, to buy the underlying asset at a predetermined price on or before a specific date. A put option gives the right to sell.

"We have seen renewed demand for downside protection after the the negative news flow related to FTT," Patrick Chu, director of institutional sales and trading at over-the-counter crypto derivatives tech platform Paradigm, told CoinDesk.

"Short dated skew in particular has moved in favor of puts as we have seen downside protection in both BTC & ETH with strong demand for end Nov / Dec expiries," Chu added.

The chart shows a renewed demand for bearish put options. (Amberdata)

Both short-term and long-term bitcoin call-put skews, measuring prices for bullish calls relative to puts, have turned lower from zero this week. The one-week skew has dropped from -1% to -12%, the lowest since late September, according to digital assets data provider Amberdata.

In other words, puts are back in demand.

A similar pattern is observed in ether call-put skews.

The one-week skew has tanked to -20%, reflecting increased demand for short-term puts. (Amberdata)

The one-week ether call-put skew has dropped to nearly -20%, indicating strongest bias for bearish puts since mid-September.