In brief
- Traders are focused on key strikes in the options market as positioning turns defensive.
- Recent shifts in rate cut odds have weighed on sentiment heading into Friday’s remarks from Fed Chair Jerome Powell.
- A neutral tone from Powell could disappoint markets already pricing in a September cut.
Bitcoin traders are closely monitoring two price levels as U.S. Federal Reserve Chairman Jerome Powell prepares to deliver his highly anticipated address at Jackson Hole on Friday.
The options market is currently sending mixed signals, with data suggesting a defensive posture even as a potential for another rally in the second half of this year remains.
A negative 25 Delta Skew suggests traders are paying more for call options—or the right to buy at a certain strike price—reflecting a tilt towards a bullish bias.
Still, it’s worth noting that the Skew has declined slightly over the past 24 hours, hinting at a dip in traders willing to put up cash to stay in their positions ahead of Friday’s event.
Bitcoin is down nearly 5% over the past week, trading near a two-week low of $113,000, according to CoinGecko.
The cautious shift aligns with last week’s market correction after rate cut expectations declined on the back of weaker-than-expected producer data and rising core inflation.
“The event risk is high ahead of Fed Chair Powell’s remarks at Jackson Hole,” James Toledano, Chief Operating Officer at Unity Wallet, told Decrypt in an email.
“Volatility positioning is likely to remain defensive through the speech, followed by either renewed direction or status quo afterwards,” Toledano said.
Heavy volume and open interest for Bitcoin options are currently clustered at the $110,000 and $120,000 strikes, signaling key areas of demand and supply, Deribit data shows.
High stakes
The speech on Friday is a high-stakes decision for Powell, especially with mounting pressure from Washington to cut interest rates to as low as 1%.
The CME FedWatch Tool, puts the odds of a quarter-point September rate cut at 75%, which would lower the federal funds rate to a target range of 4% to 4.25%
Odds have slid more than 15% since the release of the latest producer price index data last week.
The most likely outcome from Friday is still a “sort of technocratic grey,” Haonan Li, CEO of Codex, a crypto infrastructure company backed by Circle and Coinbase, told Decrypt.
Li, a former head of cryptoeconomics at OP Labs and a former investment analyst at Oak Hill Advisors, expects Powell to maintain a neutral, data-dependent tone without committing to a September rate cut.
Options analysts that Decrypt spoke to previously are aligned with that view, suggesting institutions are not optimistic about the meeting.
That could be a tall order for short-term investors who purchased the top crypto over the past 30, 60, and 90 days. That cohort is now holding their investment at a loss or close to breakeven, Santiment data shows.
Li cautions that if the market consensus around a rate cut is wrong, “risk assets like Bitcoin and Ethereum will fall.”
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