NEW YORK (Reuters) -The likelihood of bitcoin ending the year below $90,000 has risen to 50%, according to online options platform Derive.xyz, as traders ramped up hedging against more declines in the world's largest cryptocurrency.

On the other hand, the options market has assigned just a 30% chance of bitcoin finishing 2025 above $100,000. 

Bitcoin was last down 4.2% at $86,681.41 on Thursday, after earlier falling to a seven-month low. It rose to an all-time peak of $126,223.18 in early October. So far this year, bitcoin has fallen more than 7%, on track for an annual decline -- the first since 2022.

Bitcoin has also dropped below its 50-day and 200-day moving averages and has fallen out of favor with trend-following investors, analysts said.

"The BTC price is currently very tenuous and skewed to the downside," said Sean Dawson, head of research at Derive.xyz in Canberra, Australia.

"Previous bull drivers like lowered rates ... have fizzled out, stalling upward price momentum. In other words, there's very little to be bullish about on the horizon." 

Dawson estimated that over the last 30 days, crypto liquidations in both long and short positions totaled $8.25 billion.

SIZEABLE CONCENTRATION OF BITCOIN PUTS

One of the main catalysts for the decline in bitcoin has been the less dovish stance of several Federal Reserve officials, who are advising caution on further interest rate cuts and citing still-too-high inflation. This has diminished expectations of a rate cut next month and has weighed on bitcoin and other risk assets such as stocks.

He added that "a powderkeg of volatility in tech valuations" could see bitcoin sink to $75,000 before the end of the year, although prices should quickly rebound from that level.    

Derive.xyz also pointed to a sizeable concentration of bitcoin "puts," about 13,800 contracts, conferring the right to sell bitcoin at a strike price of $85,000 at the December 26 expiry. A put option gives the holder the right, but not the obligation, to sell bitcoin at a set strike price. 

The trade reflects demand for downside protection if bitcoin falls below $85,000.

To be sure, some market participants believe a turnaround in bitcoin is not far behind.

Sean Farrell, head of digital asset strategy at Fundstrat, wrote in his latest note that the "near-term risk/reward now looks more balanced." He said that even if this proves to be an unsustainable turn, conditions are ripe for a sharp bounce in bitcoin.

Farrell said oversold signals are now starting to flash after bitcoin hit a seven-month low below $90,000, calling it a "potential value zone" that could attract buyers. He also said the latest selloff had cleared the market of last week's "forced and motivated sellers."

OPTIONS VOLATILITY SPIKES ACROSS THE BOARD

That said, other options indicators are flashing bearish signals.

Bitcoin's so-called call-put "skew" has taken a beating. The call-put skew, which reflects market sentiment, refers to the difference in implied volatility between calls, which are options to buy, and puts, which are options to sell. This skew shows a preponderance of puts over calls.

The 30-day put skew has further dropped from -2.9% to -5.3%, which means traders are increasingly paying up for downside insurance as prices continue to soften.

Options volatility across the board has also spiked, according to Derive.xyz's Dawson. Thirty-day implied volatility has jumped from 41% to 49% in just two weeks and long-term volatility -- 180 days -- has increased to 49% from 46%. 

This surge in volatility underscores the uncertainty surrounding bitcoin's trajectory, a point that resonates with some bearish voices in the market.

Jack Janasiewicz, portfolio manager and lead portfolio strategist at Natixis Investment Managers Solutions, said his bearish view rests on bitcoin's utility and mass adoption even as he acknowledged its increasing institutional acceptance.

"Can you really buy coke with bitcoin down the street? Sure you can allocate 1% or 2% of your portfolio to bitcoin in case it goes to $1 million," he said.

But if it goes to zero, an allocation of 1%-2% is not a big loss, he added.