Bitcoin (BTC) options market activity is signaling moderate risk aversion as traders await Federal Reserve (Fed) Chair Jerome Powell’s anticipated comments regarding a possible rate cut in June.
“While the Federal Reserve is expected to keep rates steady at this week’s meeting, we’ve observed only limited demand for protective BTC puts, indicating a relatively cautious stance among sophisticated traders,” said Luuk Strijers, CEO of Deribit, the leading crypto options exchange, in an interview with CoinDesk.
Put options give buyers the right, but not the obligation, to sell the underlying asset at a specified price before or on a certain date, providing a hedge against potential price declines. Traders typically buy puts to protect long spot positions or to profit from anticipated market downturns.
Deribit, which processes billions of dollars in daily trading volume, sees one options contract as equivalent to one Bitcoin (BTC). Despite some signs of caution, Strijers explained that the broader options market does not display a strong directional bias or a significant inclination toward downside protection.
“Spot BTC has retraced to around $94,000, and Deribit’s DVOL index, which measures implied volatility, stands at 45—levels last seen in June 2024. This suggests a moderate risk-off sentiment, but not an overwhelming rush for protection,” Strijers noted.
DEX Traders Display More Caution
While the broader market remains relatively calm, traders on decentralized exchange Derive.XYZ appear more concerned about downside risks.
“There’s clear evidence of traders purchasing puts at strike prices like $82K, $78K, and $76K, likely in response to concerns over the Federal Reserve’s upcoming meeting, where expectations for no rate cuts—or even hikes—could send shockwaves through the market,” explained Dr. Sean Dawson, Head of Research at Derive.XYZ, in an email to CoinDesk.
Derive.XYZ, formerly known as Lyra, is a leading on-chain options platform that accounted for over 20% of the total on-chain activity, totaling $1.38 billion in April, according to DeFiLlama data.
Fed’s Likely Action and Market Sentiment
The Federal Reserve is widely expected to keep the benchmark interest rate steady at 4.25%-4.50% at the upcoming meeting, though Powell may face questions about the prospect of a rate cut in June, particularly following last Friday’s stronger-than-expected nonfarm payrolls data.
Market participants had initially expected a rate cut in June, but the strong jobs report has shifted expectations, with traders now assigning a 30% chance of a rate reduction. “The Fed’s next move will largely depend on economic data in the weeks ahead,” said Lee Hardman, senior currency analyst at MUFG. “After the solid April nonfarm payrolls report, the chance of a June cut is lower, and much will depend on the incoming economic data.”
If Powell dismisses the possibility of a June rate cut or expresses concerns about stagflation, risk assets, including Bitcoin, could face additional pressure. Similarly, if Powell’s remarks reflect heightened uncertainty about the economic situation, particularly regarding the trade war between the U.S. and China, it could add further volatility.
However, Bank of America (BofA) expects Powell to leave the door open for a potential rate cut. “While the bar for a June cut is high, Powell is likely to maintain a data-dependent stance and avoid ruling out the possibility,” BofA’s global research team stated in a note to clients.
As Bitcoin traders and investors continue to navigate this uncertain economic environment, much will depend on Powell’s remarks and the broader economic data released in the coming weeks.
