Concerns regarding potential declines in Bitcoin BTC$116,425.80 and Ethereum (ETH) have significantly diminished, as indicated by the latest data from the options market. The trajectory of any forthcoming upward movement for these cryptocurrencies will largely depend on the extent of the expected Federal Reserve rate cut set for September 17.
The seven-day call/put skew for BTC, which assesses how implied volatility is allocated between calls and puts expiring within a week, has bounced back to nearly neutral from a bearish 4% just one week prior, according to Amberdata’s findings.
While both the 30- and 60-day option skews remain slightly negative, they have shown improvement since last week’s lows, indicating a significant reduction in downside apprehensions. Similarly, Ether’s options skew is reflecting this trend at present.
This skew illustrates the market’s directional inclination or how much traders are worried about price fluctuations—whether upwards or downwards. A positive skew indicates a preference towards calls or bullish strategies; conversely, a negative reading suggests heightened demand for put options as protection against downturns.
The adjustment in options coincides with an uptick in Bitcoin and Ethereum prices ahead of Wednesday’s Fed rate announcement. The central bank is largely anticipated to lower rates while paving the way for further easing measures over subsequent months. Over seven days, BTC has surged more than 4%, surpassing $116,000; meanwhile, Ether has risen nearly 8% to reach $4,650 based on CoinDesk data.
The future direction hinges primarily on how substantial the upcoming Fed rate cut will be. Traders utilizing CME’s Fed funds futures have assigned over a 90% likelihood that rates will be reduced by 25 basis points (bps), bringing them down to between 4%-4.25%. However, there remains a slight chance of an unexpected larger cut of up to 50 bps.
If such an unexpected move occurs with a reduction of 50 bps by the Fed it could lead BTC into wild territory.
“A surprise reduction of 50 bps would serve as an enormous +gamma BUY signal for ETH, SOL and BTC,” stated Greg Magadini from Amberdata via email correspondence. “Gold would also experience extreme volatility.”
It’s worth noting that SOL options listed on Deribit already demonstrate strong bullish sentiment with calls trading at premiums ranging from four to five times higher than puts.
Magadini elaborated that if outcomes align with expectations surrounding a standard cut of 25 bps then it seems likely that BTC may continue its steady “grind higher.” As for ETH? It might require another week before attempting to retest its all-time highs convincingly above $5k he added.