Bitcoin (BTC) traders are seeking downside protection ahead of the U.S. inflation data, which is expected to show President Donald Trump's trade tariffs are starting to affect consumer prices.

The report, due at 12:30 UTC, is expected to show that the headline consumer price index (CPI) increased 2.8% year-on-year in July, up from a 2.7% rise in June, according to Bloomberg data.

On a monthly basis, prices are forecast to increase 0.2%, a slight decline from July's 0.3%. The core CPI, which excludes the volatile food and energy component, is likely to have risen 0.3% in July following a 0.2% rise in June.

According to analysts, a hotter-than-expected CPI could dampen Fed rate cuts, potentially weighing on risk assets, including BTC.

'The market's immediate focus is on Tuesday's U.S. CPI print, with the market expecting a modest uptick to 2.8% YoY. 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, told CoinDesk in an email.

Some traders are already positioning for a hotter print and potential losses in BTC. According to Singapore-based QCP Capital, the precautionary flow is evident from the increase in demand for short-dated put options. A put option protects the buyer from price losses in the underlying asset.

"In anticipation, some traders are hedging event risk, with front-end $115,000–$118,000 BTC puts seeing increased demand to protect against a downside surprise," QCP Capital's market insights team said Monday. "This defensive positioning sits alongside short-call covering from topside buyers."

The covering of the short call positions indicates that traders also remain wary of topside risk. BTC changed hands at $118,525 at press time.

Read more: Bitcoin Traders Eye $135K, Ether $4.8K in Crosshairs as CPI Data Looms