Bitcoin Traders Buy Puts Ahead of Powell's Remarks on Rate Cut

Bitcoin traders are actively seeking downside protection ahead of Federal Reserve Chair Jerome Powell's anticipated remarks on a potential June rate cut. The options market is showing signs of moderate risk aversion, with traders purchasing put options to safeguard against potential price declines. A put option grants the buyer the right, but not the obligation, to sell the underlying asset at a predetermined price on or before a specific date, essentially serving as insurance against price drops. Traders typically buy put options to profit from or protect long spot market positions during market downturns.

Deribit, a leading crypto options exchange, has observed nuanced demand for protective BTC puts, indicating limited caution among sophisticated traders. The broader options market has not shown a strong directional bias or decisive tilt toward downside hedging. Spot BTC has retraced to around $94,000, and Deribit’s DVOL, an 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.

However, traders on decentralized exchange Derive.XYZ appear more cautious, purchasing puts at $82,000, $78,000, and $76,000 strikes. This cautious approach is likely due to concerns over the Federal Reserve board meeting, which could result in no rate cuts or even hikes. On Wednesday, the Fed is expected to keep the benchmark interest rate steady in the range of 4.25%-4.50%. Powell is likely to maintain a broad data-dependent stance at the post-decision press conference.

Powell could be asked about the prospects of a rate cut in June and the economic uncertainty stemming from recent trade tensions. Until last Friday's hotter-than-expected nonfarm payrolls release, markets expected the Fed to cut rates by a quarter percentage point in June. However, the strong jobs report has shifted market expectations, with traders now seeing just a 30% chance of a move in June. Market participants will be closely watching next week’s FOMC meeting to see if the Fed provides a stronger signal that it is considering resuming rate cuts at the following FOMC meeting in June.

Risk assets, including BTC, may come under pressure if Powell strongly pushes back against the June rate cut, voicing stagflation fears. A similar reaction may be seen if the assessment of uncertainty in the policy statement is upgraded to reflect trade war developments since April. Bank of America expects Powell to keep the door open for a potential rate cut in June, stating that it is easier to simply state that the Fed is data-dependent and vigilant to risks to both of its mandates, and then let the data speak.