The latest data from the options market suggests that fears of a downward spiral for Bitcoin (BTC) and Ether (ETH) have notably eased. This shift in sentiment comes just days before the Federal Reserve’s anticipated rate cut decision, drawing attention from traders and investors alike. With the Fed’s announcement looming on September 17, all eyes are on how these leading cryptocurrencies will react in the wake of potentially lower interest rates.
Options Market Signals Shift in Sentiment
Recent data from Amberdata reveals that BTC’s seven-day call/put skew, a metric that indicates the distribution of implied volatility between call and put options, has rebounded to nearly zero. This is a significant recovery from its previous bearish stance of 4% just a week ago. Similarly, the 30- and 60-day option skews, although still slightly negative, have improved from last week’s lows, indicating a diminishing fear of downside risks. Ether’s options skew mirrors this pattern, showing a similar easing of bearish sentiment.
The options market’s skew reflects traders’ directional biases. A positive skew suggests a preference for call options, often a bullish sign, while a negative skew indicates a higher demand for put options, often linked to seeking downside protection. The recent moderation in skew suggests that traders are less concerned about potential price drops, at least for now.
Anticipation Builds Ahead of Fed Decision
The upcoming Federal Reserve decision is a focal point for market participants, with the central bank expected to cut interest rates. Bitcoin has seen a 4% increase over the past week, climbing to over $116,000, while Ether has surged nearly 8% to $4,650, according to CoinDesk data. These movements reflect a renewed upswing in anticipation of the Fed’s rate announcement.
The extent of the Fed’s rate cut remains a critical factor. According to CME’s Fed funds futures, there’s over a 90% probability that the central bank will opt for a 25 basis point (bps) cut, bringing rates down to 4%-4.25%. However, there’s a slim chance that the Fed might implement a larger, more unexpected 50 bps cut. Such a move could send shockwaves through the market.
Potential Scenarios and Market Reactions
In the event of a surprise 50 bps rate cut, experts like Greg Magadini, director of derivatives at Amberdata, predict a significant market reaction. “A surprise 50 bps rate cut would be a massive +gamma BUY signal for ETH, SOL, and BTC,” Magadini noted in an email. He also suggested that gold, another traditional hedge against inflation and economic uncertainty, would likely experience a sharp increase in demand.
On the other hand, if the Fed sticks to the anticipated 25 bps cut, the market could see a more measured response. In this scenario, BTC may continue its “calm grind higher,” while ETH might take a bit longer to challenge its all-time highs and aim to trade above $5,000, according to Magadini.
Broader Implications for the Crypto Market
The potential rate cut from the Federal Reserve comes at a time when global economic conditions are prompting central banks to adopt more accommodative monetary policies. For the cryptocurrency market, which often thrives on liquidity and lower interest rates, a rate cut could provide further tailwinds.
Beyond Bitcoin and Ether, other cryptocurrencies like Solana (SOL) are also on the radar. Deribit-listed SOL options are already showing strong bullish sentiment, with calls trading at a 4-5 volatility premium to puts. This suggests that traders are positioning for a potential upward move, anticipating broader market dynamics to favor risk assets.
Balanced Perspectives
While the prospect of a Fed rate cut is largely viewed as positive for cryptocurrencies, it’s important to remain mindful of potential risks. Macroeconomic uncertainties, regulatory developments, and technological factors can all influence market dynamics in unforeseen ways.
Investors should consider a balanced approach, weighing both the upside potential and the inherent risks associated with the volatile nature of cryptocurrencies. As the market continues to evolve, staying informed and adaptable will be key to navigating this dynamic landscape.
Conclusion
The easing of downside fears in the options market for Bitcoin and Ether, coupled with the anticipation of the Federal Reserve’s impending rate cut, sets the stage for a potentially pivotal moment in the cryptocurrency space. Whether the Fed opts for a standard 25 bps cut or surprises with a larger move, the coming days promise to be eventful for traders and investors. As always, keeping a watchful eye on market developments and maintaining a balanced perspective will be crucial in navigating the complexities of the crypto market.
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
