Bitcoin traders are bracing for possible market volatility as Federal Reserve Chair Jerome Powell is set to deliver remarks that could influence the direction of U.S. monetary policy. With anticipation mounting ahead of Powell’s speech, Bitcoin options markets are reflecting a more cautious sentiment, as traders position themselves for potential shifts in the financial landscape.

Despite the widespread expectation that the Federal Reserve will hold interest rates steady at its upcoming meeting, the options market has shown an uptick in demand for downside protection. This indicates that traders are preparing for the possibility of unexpected moves or comments that could spark market turbulence.

Options Market Signals Risk Aversion

According to data from Deribit, a major crypto options exchange, there has been a notable increase in protective puts, which allow investors to sell Bitcoin at a predetermined price. These puts have been a key tool for traders looking to safeguard against potential downside risks, though the overall demand remains moderate.

Luuk Strijers, CEO of Deribit, noted, “The current market sentiment remains neutral, but traders are hedging their bets in case Powell surprises the market with a hawkish tone or unexpected remarks regarding future rate hikes.”

The moderate demand for downside protection reflects a sense of cautious optimism in the market, with most traders expecting Bitcoin to hold its ground near the $94,000 level, at least in the short term. Still, the options market’s implied volatility remains elevated, signaling that many traders are uncertain about the near-term price direction.

Decentralized Exchange Traders More Focused on Potential Downside

Traders on decentralized exchanges (DEXs) such as Derive.XYZ, however, appear to be more focused on potential downside risks. Dr. Sean Dawson, Head of Research at Derive.XYZ, noted that many traders have been buying put options with strike prices below $85,000, indicating concerns about a sharp downturn if Powell suggests tighter monetary policy.

“With Powell’s speech coming up, many DEX traders are positioning themselves for a potential pullback in the market, particularly if there’s any indication that the Fed may maintain a more hawkish stance,” Dawson said.

The increased put buying activity on DEXs highlights the ongoing uncertainty surrounding the Fed’s next moves, as well as the broader market’s sensitivity to regulatory signals.

Market Expectations for Powell’s Speech

While the Fed is widely expected to leave rates unchanged, Powell’s comments will be closely watched for clues about future policy adjustments. Recent economic data, including a solid nonfarm payrolls report, has caused some analysts to revise their expectations. There is now speculation that the Fed may take a more cautious approach, potentially delaying or even ruling out rate cuts in the near future.

“The strong employment data has caused the market to recalibrate its expectations, with less probability of a rate cut in the immediate future,” said Lee Hardman, Senior Currency Analyst at MUFG. “However, Powell’s speech could provide some clarity on whether the Fed is moving toward a more dovish stance or staying firm on a more restrictive monetary policy.”

If Powell signals that the Fed may hold off on rate cuts or continue with its current stance, Bitcoin and other risk assets could face additional selling pressure. Conversely, if Powell suggests that the Fed is still open to easing policy, it could buoy Bitcoin prices, as lower rates tend to support riskier assets.

Outlook for Bitcoin and the Broader Market

Bitcoin’s price action in the lead-up to Powell’s comments is expected to be volatile, with traders adjusting their positions based on the evolving economic data and Fed policy signals. As the market waits for clarity from the Federal Reserve, much will depend on how Powell frames the central bank’s strategy in the coming months.

With heightened uncertainty in the global economy and a Fed that remains on the fence, Bitcoin traders are preparing for a range of possible outcomes, with many using options to hedge against potential risks.