The Bitcoin (BTC) options market is reflecting a moderate risk aversion as traders prepare for Federal Reserve (Fed) Chair Jerome Powell’s upcoming remarks regarding a potential interest rate cut in June. Observers anticipate that while the Fed is likely to hold rates steady in their meeting this week, the nuanced demand for protective BTC puts suggests that sophisticated traders are exercising some caution.
According to Luuk Strijers, CEO of Deribit, one of the leading crypto options exchanges, the demand for protective puts indicates limited apprehension among traders. “While the Federal Reserve is widely expected to hold rates steady at this week’s meeting, we have only seen some nuanced demand for protective BTC puts, reflecting limited caution among sophisticated traders,” he noted.
A put option enables the purchaser to sell the underlying asset at a predetermined price before a specified date, serving as a form of insurance against market downturns. Traders typically invest in put options to profit from or safeguard their long positions against potential declines.
As the world’s leading crypto options exchange, Deribit recorded billions in daily trading volume, with one options contract representing one BTC. Strijers pointed out that the broader options market has not demonstrated a strong directional trend or a decisive inclination towards downside hedging. “Spot BTC has retraced to around $94k, and Deribit’s DVOL, our implied volatility index, sits at 45 — levels last observed in June 2024. This suggests a moderate risk-off sentiment, but not yet a panic-driven rush for protection,” he elaborated.
DEX Traders Show Increased Caution
In contrast, traders utilizing the decentralized exchange Derive.XYZ appear to be more cautious, with evidence of increased demand for downside protection. Dr. Sean Dawson, head of Research at Derive.XYZ, noted that traders are acquiring puts at strike prices of $82K, $78K, and $76K due to rising concerns over the Federal Reserve’s meeting outcomes that could lead to either no rate cuts or, worse, rate hikes.
Derive, formerly known as Lyra, is a prominent on-chain options platform, commanding over 20% of the $1.38 billion total on-chain activity reported in April, according to DeFiLlama. Given that the Fed is anticipated to maintain the benchmark interest rate within the range of 4.25%-4.50%, the focus will shift to Powell’s communications during the post-decision press conference, particularly regarding the potential for a June rate cut.
Skepticism Around June Rate Cuts
The discussion surrounding a possible June rate cut intensifies as Powell is expected to address existing economic uncertainties, especially in light of President Donald Trump’s recent trade tensions with China. Until recently, markets projected a quarter-point rate cut in June, but a stronger-than-expected nonfarm payrolls report has shifted these expectations, leading traders to reassess the probability of such a move to only 30%.
Lee Hardman, a senior currency analyst at MUFG, emphasized that market participants will be closely observing the Fed’s signals during the next week’s FOMC meeting. “After today’s solid nonfarm payrolls report for April, it is less likely that the Fed will set up a cut in June, which now seems dependent on incoming US economic data,” he stated in a recent note.
Should Powell strongly oppose the idea of a June rate cut, citing fears of stagflation or raising concerns over uncertainties in the policy statement linked to trade war developments, risk assets, including BTC, could face pressure. Conversely, Bank of America (BofA) expects Powell to maintain a cautious openness regarding potential rate cuts. “Powell will likely be questioned about the prospects for a June cut. Although the bar for a rate cut appears high, we don’t believe he will dismiss the possibility entirely,” BofA’s global research team remarked.
Ultimately, the dynamics between the Bitcoin options market and upcoming Fed communications indicate a landscape of cautious optimism interspersed with underlying apprehension. Market participants are urged to remain vigilant as these developments unfold.
