Manage Bitcoin Risk With Options | Matrixport Research

There are times when a risk-reward analysis suggests that traders should take on significant risk, and other periods when a more balanced outlook calls for a more cautious positioning. As professional investors, it is critical to account for all risks and potential scenarios to navigate this evolving landscape effectively. There are moments when making bold market calls is appropriate and others when the focus should shift to risk management, especially when the market’s direction is unclear.

Bitcoin may enter a consolidation phase. Shifts in global liquidity pose a potential headwind for Bitcoin, as evidence indicates that liquidity trends often lead Bitcoin’s price movements by approximately 13 weeks.

Since the December FOMC meeting, Bitcoin ETF inflows have plateaued, remaining essentially unchanged from their peak of $35.9 billion — a record high. However, with a more hawkish Fed in play, risk capital may hesitate to allocate further toward these ETFs until there is greater clarity on monetary policy. This was the focus of our December 27, 2024 report, “The Greatest Risk to Bitcoin’s Bull Market in 2025.” In the report, we highlighted that while the market initially downplayed the hawkish tone of the December FOMC meeting, historical analysis of Bitcoin’s performance raised concerns that such hawkish rhetoric could limit Bitcoin’s rally until the Fed signals a shift to a more dovish stance.

While many attribute Bitcoin’s rally in 2024 to the introduction of ETFs, it may have been more closely tied to shifts in Federal Reserve policy. The rally began as Fed Chair Powell adopted a more dovish tone in late January 2024. This coincided with Bitcoin’s upward momentum, which eventually stalled as Powell became less clear about when the Fed would start cutting rates during the March FOMC meeting. This indecision likely contributed to the six-month sideways consolidation that followed, making the next move heavily reliant on the Fed turning dovish in September.

The risk of a runaway rally in Bitcoin is relatively low. Despite Trump’s bullish crypto agenda, the Federal Reserve’s hawkish stance may cap any significant rally attempts. While downside risks appear limited, they cannot be entirely ruled out.

Currently, with implied volatility at low levels, options present an attractive opportunity. Call options are relatively inexpensive, allowing traders to capitalize on potential upside. Alternatively, put options can be used cost-effectively to protect significant Bitcoin profits. Given the current uncertain outlook, leveraging options is a prudent way for traders to manage risk while maintaining exposure to potential market movements.

Disclaimer: The above content is for informational purposes and reference only. The content does not constitute investment advice. Digital asset transactions can be precarious and volatile. Investment decisions should be made after carefully considering individual circumstances and consulting financial professionals. Matrixport is not responsible for any investment decisions based on the information provided in this content.

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