What is a trigger order? Decoding the derivative strategies behind Bitcoin's 3-month correction

Over the past three months, Bitcoin’s price has retraced nearly 18% from its highs, and the market is filled with voices of an “impending winter.” However, according to the latest research from chain data analysis firm Glassnode and renowned crypto fund Fasanara Digital, this correction actually indicates healthy market functioning. To understand why volatility is decreasing instead, one must recognize an increasingly popular strategy in the derivatives market—Call Overwriting.

Surging Capital Inflows: Bitcoin Has Not Entered a Winter

To determine whether Bitcoin has truly entered a bear cycle, the most direct indicator is capital movement. According to the Glassnode report, since the 2022 lows, the crypto market has attracted over $732 billion in net new capital. This massive influx has pushed Bitcoin’s “Realized Cap” to about $1.1 trillion, while the spot price of Bitcoin has risen from $16,000 to a historic high of $126,000.

More importantly, the scale of capital inflow in this cycle has surpassed the total of all previous Bitcoin cycles. As a key indicator reflecting the “crypto winter”—the “Realized Cap”—shows no signs of contraction so far, indicating the market is absorbing rather than selling off.

Why Is Volatility Decreasing? The Hidden Suppression of Call Overwriting Strategies

If we were truly in a bear market, market volatility should be rising. But Glassnode’s data shows that Bitcoin’s one-year “realized volatility” has decreased from 84% to around 43%. What is the underlying reason behind this?

The answer lies in the rise of the derivatives strategy called Call Overwriting. What is a call overwrite? Simply put, it is a strategy where investors sell call options—by holding Bitcoin spot and selling call options above the current price, they earn premium income. When Bitcoin’s price stays below the strike price, the options expire worthless, and investors keep both the spot holdings and the premiums.

In the current market environment, especially after the launch of spot ETFs like IBIT (iShares Bitcoin ETF), more institutional investors are adopting call overwriting strategies to enhance yields. The widespread adoption of this strategy creates a persistent “selling call options” momentum, artificially suppressing Bitcoin’s volatility.

Historical experience shows that the arrival of a “crypto winter” is often accompanied by rising volatility and drying liquidity. But the current situation is the opposite—ample liquidity, halved volatility, and ongoing call overwriting strategies suppressing price swings. This combination is characteristic of a bull market correction phase, not the early stage of a bear market.

ETF Buying Continues, Miners Outperform: Typical Mid-Cycle Bullish Signals

To further confirm market conditions, look at ETF and mining performance. Glassnode indicates that spot ETFs currently hold about 1.36 million BTC, roughly 6.9% of circulating supply. Since listing, spot ETFs have contributed about 5.2% net inflow, with no signs of net outflows so far. During past “crypto winters,” ETFs typically experienced net outflows and continued bleeding, which is not the case now.

During Bitcoin’s retracement, CoinShares’ Bitcoin mining ETF (WGMI) has surged over 35%. This is a crucial signal. Historically, the earliest casualties in a bear market are miners, as deteriorating mining profitability quickly erodes corporate gains. The strong performance of miners now indicates that market participants do not see long-term prospects as bleak.

Historical Evidence: Similar Shakeouts in 2017, 2020, and 2023

Looking back at history, similar correction patterns have repeated in 2017, 2020, and 2023. These pullbacks were often accompanied by deleveraging in derivatives markets or global liquidity tightening, but each time they only reset market positions rather than ending the cycle.

More importantly, Bitcoin’s current price level is around $90,000, still closer to recent highs than lows. During past winters, Bitcoin typically hovered near bottoms, with realized losses accumulating and long-term holders weakening their behavior. The current market shows none of these features.

According to the latest data, Bitcoin’s 30-day price change is +1.55%, with a circulating market cap of $179.948 billion, all indicating that the market remains upwardly oriented after shakeouts.

Call Overwriting and Capital Dynamics: The Market Is Undergoing a Healthy Correction

Connecting all these indicators, the truth becomes clearer: Bitcoin is not entering a winter but is undergoing a healthy mid-cycle correction. The record high in realized cap, declining volatility, and steady performance of ETFs and miners are normal reactions to massive capital inflows.

Furthermore, the widespread use of call overwriting strategies further demonstrates the market’s health—institutional investors are willing to sell call options to boost yields, reflecting confidence in long-term prospects. This is not despair selling typical of a bear market, but rather rational capital allocation.