Bitcoin traders are buying downside protection ahead of a closely watched U.S. consumer price index (CPI) release that could show trade tariffs beginning to feed through to consumer prices.
The CPI print, due at 12:30 UTC, is expected to show headline inflation rising to about 2.8% year-on-year in July from 2.7% in June, while month-on-month gains are forecast to slow slightly to roughly 0.2%. Core inflation, which strips out food and energy, is forecast to have risen about 0.3% in July after a 0.2% increase in June.
Market participants say a hotter-than-expected CPI would reduce the odds of near-term Federal Reserve rate cuts, which could weigh on risk assets including bitcoin. “A softer reading would likely cement a September rate cut by the Federal Reserve, a positive for risk assets. Conversely, a hotter print could stall the rally, triggering tactical profit-taking across risk assets,” Timothy Misir, head of research at BRN, said.
Some traders are already hedging against a downside surprise in bitcoin. Singapore-based QCP Capital reports increased demand for short-dated put options, with front-end $115,000–$118,000 bitcoin puts seeing notable buying to protect against a drop. That defensive flow is occurring alongside short-call covering from buyers worried about topside moves, indicating caution on both directions.
At the time of reporting, bitcoin was trading around $118,525. Traders have also eyed higher levels — some analyses have highlighted targets near $135,000 — but the immediate market focus remains on the CPI print and its implications for Fed policy.
Additional comments:
– Why CPI matters for bitcoin: higher inflation can push the Fed to delay or reduce the size of rate cuts, which typically dampens appetite for risk assets; lower or cooling inflation increases the probability of easing, which is generally supportive for assets like bitcoin.
– What option flows indicate: rising demand for short-dated puts signals traders are protecting against event risk around the CPI release. Short-call covering suggests some participants are reducing bets against further upside, leaving the market with mixed but guarded positioning.
– Traders should watch both the headline and core CPI readings, and how quickly markets update expectations for Fed action after the print.
Summary:
Traders are hedging around Tuesday’s U.S. CPI release that could influence Fed rate-cut expectations. Anticipated modest upticks in headline and core inflation have prompted increased buying of short-dated bitcoin puts and short-call covering, reflecting caution on both downside and upside event risk. A cooler-than-expected CPI would likely boost prospects for a September rate cut and be positive for risk assets; a hotter print could trigger profit-taking.