Bitcoin options traders are dropping their hedges going into the Fed meeting

Bitcoin options traders have significantly reduced their downside hedges since late June, as reflected in the drop of the put/call open-interest ratio from about 0.76 to 0.52. This shift indicates traders are stepping back from protective positions, favoring calls over puts. Large traders have notably accumulated $70,000 strike calls and engaged in bull call spreads, signaling an expectation of upward movement in Bitcoin's price, which is currently around $65,000.

Short-dated options exhibit much lower demand for immediate protection compared to contracts with three- to six-month maturity. The 25-delta skew, which measures the premium paid for downside protection relative to upside exposure, has decreased to around 4% for one-week options but remains elevated at 11% to 12% for three- and six-month tenors. This suggests traders anticipate stability in the near term but remain cautious about potential turbulence later in the year.

Implied volatility is relatively subdued across the curve, standing at 34.3% for one week and 40.8% for six months, creating an upward-sloping volatility curve. This pattern, atypical ahead of scheduled macroeconomic events, reflects market expectations of a calmer price movement this week compared to the more uncertain outlook over the longer term. The Federal Reserve's rate decision, scheduled for Wednesday, carries only about a 15% chance of a rate increase, which aligns with the limited near-term market volatility pricing. However, the low volatility and thin positioning could amplify market reactions if the Fed announcement surprises investors.

Meanwhile, Bitcoin maintained a firm price near $65,000 despite recent selloffs in the broader tech sector and challenges within the crypto industry, such as bankruptcy filings from blockchain projects Movement Labs and Storj and winding down of exchanges BitMEX and BitMart. Market repositioning since June saw Binance retain a significant share of user funds (around 55%) and spot volume (about 24%) while attracting net inflows even as the broader market experienced outflows. This concentration suggests Binance remains a dominant and stable player amid recent sector turbulence.