Fed signals a sharp rate hike in March due to inflation — Here’s how Bitcoin traders can prepare

Bitcoin traders should brace themselves for the U.S. Federal Reserve’s upcoming interest rate hike on March 22. As the central bank looks to reign in the rising inflation rate, this could have an adverse impact on Bitcoin traders with an opposing market strategy.

The Fed’s increasing tightening of the purse strings hints at caution regarding the erratic nature of inflation within the local and global economies. According to reports, the benchmark interest rate is likely to be increased by 0.25 percent before the end of the cycle. This will be the third rate hike in the current cycle, following the two in 2020.

Since the Fed bundles together the short-term rate hikes when factoring economic expansions, traders in the Bitcoin market may want to go cautiously. This is compounded by the growing concern around the global economic situation which could lead to a bearish movement.

Options traders or those with a long-term view may be well-suited for this situation. By going long, traders can still make profits in a bearish environment as opposed to going long on Bitcoin.

When trading options, the key to profiting from a bearish market is to sell deep out of money options. By deep out of money options, traders can take advantage of the time decay of the option premium by selling options with the longest expiration. As the time to expiration gets closer, the option would have less of a likelihood of expiring in the money and the option’s premium will decay accordingly.

Low-probability options are undeniably attractive because of the attractive premiums as compared to in-the-money options. This can be opportunistic considering you will benefit from the trend in the market with a limited downside. This is additionally beneficial to those traders with a lower risk appetite.

The option traders would ideally benefit from the volatility of the underlying asset and a bearish market trend, garnering profits from both. There are various strategies such as buying or selling calls and puts that traders can explore for the best opportunity for maximizing their returns.

To mitigate risk, traders can partially hedge their contracts with similar positions. However, this requires the hedge to be properly executed to guarantee the desired outcome.

Options trading is relatively less complicated as compared to plays in the underlying asset. Cryptocurrency traders may want to explore different options strategies to generate some profits from an otherwise bearish market.

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