With the U.S. Federal Reserve holding its policy rate, the bitcoin options market is focusing on the possibility that a heightened volatility premium built up ahead of the policy announcement could shrink. Analysts say option buyers could face bigger burdens if actual price moves fail to meet expectations.

Cryptoslate, a blockchain media outlet, reported on Oct. 28 that the Federal Open Market Committee kept the policy rate at 3.75 percent to 4.00 percent. The vote was 10 in favour and 2 against, with the dissenters calling for a 0.25 percentage point increase. The Fed said inflation remains high and it would judge the future policy direction based on additional information.

Laevitas data on Oct. 26 showed bitcoin's 7-day implied volatility at 36.1 percent and realised volatility at 26.9 percent. The gap between the two was 9.2 percentage points. Both figures were annualised, indicating the options market had expected larger price swings than levels observed recently.

For option buyers, moves after the policy announcement are important. All else equal, a drop in implied volatility lowers the value of purchased options, while the passage of time also reduces remaining time value. Even if bitcoin moves in the expected direction, the burden may be hard to offset if the move is not large enough.

Still, it is hard to view the premium as driven only by the Fed meeting. Laevitas explained that European Central Bank and Bank of Japan policy decisions, economic data releases, corporate earnings and Deribit's month-end options expiries were also reflected in short-dated option prices.

A rate hold alone does not mean the volatility premium disappears immediately. The premium could persist if there are unexpected outcomes in subsequent events or policy uncertainty continues. The key going forward is whether bitcoin's actual price moves after the Fed decision can meet expectations reflected in the options market.