Fear Grips Bitcoin Derivatives Market as Softer US PCE May Spark Rebound

Demand for downside protection is rising in the Bitcoin derivatives market. Even as traders price in the risk of a sharp near-term drop, sentiment could reverse quickly if the US personal consumption expenditures price index comes in below expectations.

CoinDesk reported on June 25 that the Bitcoin market appears to be gripped by fear, with derivatives traders paying unusually high premiums to protect against losses.

The skew on one-week Bitcoin options shows put options carrying a premium about 25 points higher than call options, CoinDesk said. Because puts are used to hedge against falling prices, the pattern suggests investors are heavily pricing in short-term downside risk.

That extreme bearish positioning could also set up a short-term rebound. A similar put-option premium appeared in early February, when Bitcoin formed an intermediate bottom around $60,000 and then held that level as support for about four months, according to CoinDesk.

Traders are also watching US core PCE inflation as a potential turning point. Core PCE excludes volatile food and energy prices and is the inflation gauge preferred by the Federal Reserve. The data is scheduled for release at 9:30 p.m. in Korea on June 25.

Industry forecasts put May core PCE at a 3.4% annual increase. That would top April's 3.3% and mark the highest reading since late 2023. A lower-than-expected figure could be interpreted as a sign of easing core inflation and weaken the case for further rate increases.

A weaker-than-expected reading could trigger a quick reset in investor sentiment, CoinDesk said. Bitcoin fell to around $59,000 the previous day before rebounding to about $61,500.

Mohamed El-Erian, former chief executive officer of Pimco, wrote on X that the key question is not whether headline and core inflation will rise, but how stale those numbers already are. The data predates the recent drop in oil prices, he wrote, and lower crude prices would weigh on headline inflation while easing some pressure on core prices as well.

The market is also tracking shares of Strategy, ticker MSTR. CoinDesk said the company's common stock has broken below a head-and-shoulders pattern, a technical signal associated with a bearish reversal. Strategy is a publicly traded company with large Bitcoin holdings, and swings in its stock can influence sentiment toward the cryptocurrency.

Bitcoin's near-term direction may hinge on US inflation data and adjustments in derivatives positioning, CoinDesk said. Traders should watch whether support holds around $59,000 and whether volatility picks up after the PCE release.