Bitcoin Price Volatility Expected at the Federal Open Market Committee (FOMC) September Meeting – Here’s How to Prepare

Bitcoin (BTC) has repeatedly failed to close above $62,000 since August 3, and is currently down 11% over the past 30 days. What’s more notable is that the cryptocurrency has decoupled from the S&P 500 index, which is up 1% over the same period and 1% below its all-time high.

Investors are betting that riskier markets, including Bitcoin, could see significant gains if the Federal Reserve cuts interest rates, and professional traders are using BTC options to maximize profits while limiting risk.

A 0.50% interest rate cut could push riskier markets, including Bitcoin, higher.

Traders are wondering how to optimize their strategies for the Bitcoin price rally, while fearing forced liquidations due to unexpected price movements. Some in the market have already priced in the 0.50% rate cut, making it difficult to predict how the market will react on September 18, despite the potential bullish catalyst.

The price action suggests that positive macroeconomic trends in risk markets are being overshadowed by growing concerns within the crypto sector, with some arguing that Democratic candidate Kamala Harris’s unwillingness to support the industry has contributed to Bitcoin’s underperformance.

Gemini exchange co-founder Tyler Winklevoss claims that “Operation Chokepoint 2.0 is still in full swing” and that the “Harris Crypto ‘Reset’ is a SCAM.” Winklevoss highlighted the Federal Reserve’s recent actions against client banks, which are crypto-friendly institutions, after the Philadelphia Federal Reserve alleged that the bank failed in its anti-money laundering and risk management practices.

Also, after Kraken exchange tried to dismiss the lawsuit, a U.S. federal judge sided with the U.S. Securities and Exchange Commission (SEC). The U.S. District Court for Northern California ruled on August 3 that Kraken could be liable for offering “investment contracts, and therefore securities,” which is a significant setback for the industry. While Bitcoin was not directly affected, investor sentiment has weakened.

But with the CME FedWatch tool showing a 25% chance of a 0.50% rate cut on September 18, many believe the risk-taking market could rally. Professional traders are turning to options strategies instead of taking on the risk of leveraged futures positions.

‘Risk Reversal’ Bitcoin Options Strategy Provides Downside Protection

One of these complex strategies is ‘risk reversal’, which hedges losses due to unexpected price movements. In essence, the investor gains by holding a call option while simultaneously selling a put, paying for the cost. This setup eliminates the risk of the asset trading sideways and provides limited downside risk.

The trades described above focus on September 20 options, but similar patterns can apply to other expirations as well. Bitcoin was trading at $58,923 at the time of pricing.

First, the trader should buy a 3.5 BTC put option at $58,000 to hedge against a downtrend. Then, the trader should sell a 3.4 BTC put option at $60,000 for a net profit above this level. Finally, the trader should buy a 3.8 BTC call option at $65,000 for positive price exposure.

relevant: Bitcoin Price Continues to Drop Below $60,000 – Here’s Why

This option structure has no profit or loss between $60,000 and $65,000. The investor is betting that the Bitcoin price will break this range on September 20th at 8:00 AM UTC, resulting in unlimited profit and a loss of up to 0.12 BTC (equivalent to $7,000).

If Bitcoin goes up to $67,100 (up 14%), this strategy will return 0.12 BTC, which is also the maximum loss. Moreover, if BTC goes up 20% to $70,700, this strategy will return 0.30 BTC (equivalent to $21,200), which is far more than the downside that is limited. This option structure has no initial cost, but the exchange requires a 0.12 BTC margin deposit to cover the exposure.