Market Makers May Curb Bitcoin’s Rise Above $90,000
As the cryptocurrency market continues to soar, one crucial factor could slow down Bitcoin’s ascent above $90,000, potentially keeping prices rangebound at this level. Despite its seemingly unstoppable surge, Bitcoin’s price may struggle to break through this ceiling due to the actions of market makers.
The Role of Market Makers
Market makers, responsible for providing liquidity to the order book, constantly strive to maintain a market-neutral exposure. They profit from the bid-ask spread, buying and selling assets to balance their positions. In the Bitcoin options market on Deribit, market makers currently hold a significant positive “gamma” exposure at the $90,000 and $100,000 strike options.
Understanding Gamma Exposure
In simple terms, this means traders have sold options at these levels, leaving market makers with a large chunk of long positions. When market makers have long or positive gamma exposures, they tend to buy the underlying asset when its price is falling and sell on the rise to keep their net exposure direction neutral. This hedging acts as a volatility dampener, restricting price swings.
The Impact on Bitcoin’s Price
In Bitcoin’s case, market makers will likely trade against the market direction between $90,000 and $100,000, thereby keeping prices rangebound, assuming other factors remain equal. According to Greg Magadini, Director of Derivatives at Amberdata, “We see a lot of traders owning optionality up to the $90K handle for Nov 29th and Dec 27th. But the $90k-$100k+ range has been sold to dealers.” Should the market reach this level, prices may struggle to break through, unless sentiment shifts further bullish.
The Current Market Situation
Bitcoin is currently trading just above $82,000, only 8% away from the crucial $90,000 level. As the cryptocurrency approaches this threshold, market makers’ actions will play a significant role in shaping its price trajectory. Will Bitcoin’s rally continue unabated, or will market makers’ hedging strategies curb its ascent? Only time will tell.
Leave a Reply