Introduction: The $90,000 Threshold
As the momentum of Bitcoin (BTC) continues its upward trajectory, the $90,000 mark has emerged as a pivotal point that could trigger significant market activity. This forecast is primarily informed by the current dynamics within the options market, particularly the actions of market makers.
Understanding Market Makers and Their Role
Market makers, often referred to as dealers or MMs, play a crucial role in providing liquidity to the trading ecosystem. By taking the opposite side of investors’ trades, they aim to maintain a market-neutral position through strategic hedging in both spot and futures markets. Their profit comes from the bid-ask spread, the difference between the buying and selling prices of an asset.
Impact of Market Makers on Price Movements
Recent data from Deribit, analyzed by Amberdata, indicates that market makers are currently “short gamma” at the $90,000 strike price. This means that as Bitcoin approaches this level, market makers will need to engage in buying and selling activities—selling when the price drops and buying when it rises—to maintain their market-neutral stance. Such actions could lead to increased volatility in the market.
Expert Insights on Market Dynamics
Griffin Ardern, chief author at BloFin Academy and head of BloFin Research and Options, shared insights with CoinDesk, stating, “Given that negative gamma will continue to influence the market after settlement, the hedging strategies employed by market makers could further amplify price fluctuations.” He also noted that the potential for upward price movement appears stronger at this moment.
Understanding Gamma and Its Implications
Gamma reflects the rate of change in delta, which measures how sensitive an option’s price is to shifts in the underlying asset’s price. When market makers hold a short gamma position, they may face financial losses during volatile periods. Consequently, they are compelled to trade in alignment with market movements to maintain a balanced book.
In contrast, market makers were long gamma at $90,000 and $100,000 towards the end of the previous year, which resulted in price consolidation within that range.
Visualizing the Market: Gamma Levels
The accompanying chart illustrates gamma levels at various strike prices across different expirations. It is evident that the $90,000 strike price will maintain the most pronounced negative delta following the quarterly settlement occurring this Friday. In essence, the hedging actions of dealers could lead to pronounced market fluctuations around this critical price point.
Comparative Analysis with Other Assets
Ardern further elaborated that the gamma profile for Bitcoin post-expiration will resemble that of the gold-backed PAXG token. “Once we account for the imminent options settlement, PAXG exhibits a similar gamma exposure distribution to BTC. The price tends to receive support following steep declines and faces resistance during significant increases, leading to a wide fluctuation range,” he explained.
Conclusion: Staying Vigilant in a Volatile Market
As Bitcoin approaches the $90,000 threshold, traders and investors should remain alert to the potential for increased volatility driven by market makers’ hedging activities. Understanding these dynamics can provide valuable insights for navigating the unpredictable landscape of cryptocurrency trading.
