“Bitcoin market experiences its most fearful moment in three months following the Fed’s hawkish tone.”

Following the Federal Reserve’s hawkish stance, short-term Bitcoin puts have surged in demand, signaling a shift in sentiment within the cryptocurrency market.

Crypto traders’ initial worries about the Fed’s cautious approach were confirmed on Wednesday when Chairman Jerome Powell announced a rate cut, yet expressed hesitation over the pace of future reductions. This uncertainty has led to a decline in market sentiment, particularly for risk assets like Bitcoin.

Data from Amberdata shows that the seven-day call-put skew for Bitcoin is at its highest implied volatility premium for put options relative to calls since September. Specifically, Deribit-listed put options offering downside protection, set to expire in one week, have become the most expensive compared to call options in three months. This surge in demand for puts highlights traders’ growing concerns over the continuation of Bitcoin’s recent price decline triggered by the Fed’s hawkish tone.

The negative sentiment is further reflected in the one-month skew, which shows a stronger preference for puts over calls. For options with expiration dates ranging from two to six months, call options are now trading at a 3 volatility point premium over puts, down from a 4-5 volatility point premium earlier in the month.

The Fed’s decision to reduce the benchmark interest rate by 25 basis points to the 4.25%-4.5% range came as expected, marking a total of 100 basis points in cuts since the easing cycle began in September. However, Bitcoin’s price dropped following Powell’s cautious remarks, as he described the rate cut as a “close call” and emphasized caution regarding future moves. Powell also clarified that the Fed would not participate in any plans to create a strategic Bitcoin reserve, responding to President-elect Trump’s recent comments about holding Bitcoin in a similar way to the country’s oil reserves.

The Fed’s dot plot, which outlines future rate projections, indicated only two rate cuts in 2025, fewer than the three cuts anticipated by the market and down from the four cuts projected in September. This shift in the Fed’s outlook contributed to a broader sell-off in risk assets, with the Dow Jones dropping more than 1,000 points, or 2.5%, and Bitcoin falling from around $105,000 to just under $99,000, according to TradingView and CoinDesk.

Currently, Bitcoin is attempting a recovery, trading near $101,200 after overnight declines.

The strength of the U.S. dollar is also playing a significant role in pressuring risk assets. The dollar index remains near 108, its highest level since October 2022, which could continue to weigh on Bitcoin and other riskier assets in the near term.