Bitcoin price has the potential for rapid gains once it surpasses the $36,000 mark, as recent data from options market makers suggests. Options market makers are entities responsible for maintaining liquidity in the order book and always aim to keep a direction-neutral portfolio. They deal with options, which are derivative contracts that give the purchaser the right to buy or sell an underlying asset at a predetermined price in the future. There are two types of options: call options, which give the right to buy, and put options, which give the right to sell.
In the past four weeks, bitcoin has rallied approximately 27%, leading to an increased demand for call options with higher strike prices. This has resulted in market makers having a significant net short gamma exposure above $36,000. Gamma refers to the rate at which delta, which measures the sensitivity of options prices to changes in bitcoin’s price, changes with a $1 change in bitcoin’s price.
When market makers have a net short gamma position, they buy the underlying asset in the spot market as its value increases to maintain their overall delta exposure. This hedging activity, known as a “gamma squeeze,” often accelerates the rally. It is likely that this phenomenon played a role in bitcoin’s recent quick ascent from $30,000 to $35,000.
Potential for Explosive Price Movements
According to Alex Thorn, head of firmwide research at Galaxy Digital, if bitcoin reaches the $35,750-$36,000 range, options dealers would need to buy $20 million in spot bitcoin for every 1% increase in price. This could potentially lead to explosive price movements if bitcoin approaches those levels.
It is important to note that the current positioning of market makers differs from earlier this year when they were net long gamma. During that time, they bought low and sold high in the spot and futures market to maintain a neutral portfolio, contributing to a period of low volatility in the market.
Impact of Gamma Squeeze on Bitcoin Price
The recent positioning of options market makers suggests that the bitcoin price could experience significant gains once it surpasses $36,000. The demand for higher strike price call options has increased, leaving market makers with a net short gamma exposure. This could lead to a “gamma squeeze” and potentially accelerate bitcoin’s rally.
Factors Influencing Bitcoin Price
There are several factors that can influence the bitcoin price, such as market sentiment, global economic events, and regulatory developments. Additionally, the supply and demand dynamics of bitcoin, as well as its utility as a store of value and medium of exchange, can also impact its price.
In conclusion, the current market conditions, combined with the positioning of options market makers, indicate that the bitcoin price has the potential for rapid gains once it surpasses the $36,000 mark. The increased demand for call options with higher strike prices and the net short gamma exposure of market makers could result in a gamma squeeze, which may accelerate the rally. Investors and traders should closely monitor these developments, as they could have a significant impact on the future performance of bitcoin.
