As bitcoin’s (BTC) ongoing price surge gives off an aura of invincibility, one force threatens to slow the ascent above $90,000, potentially keeping the cryptocurrency rangebound above the said price level.
The force is of market makers or dealers – entities responsible for providing liquidity to the order book, profiting from the bid-ask spread while constantly striving to maintain a market-neutral exposure.
Those making the bitcoin options market on crypto exchange Deribit currently appear to have a significant positive “gamma” exposure at the $90,000 and $100,000 strike options. In simple terms, it means traders/investors have sold options at these levels, leaving market makers, who are always on the opposite side, 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.
In bitcoin’s case, it means market makers will likely trade against the market direction between $90,000 and $100,000, thereby keeping prices rangebound, assuming other things being equal.
“We see a lot of traders owning [buying] optionality up to the $90K handle for Nov 29th and Dec 27th. But the $90k-$100k+ range has been sold to dealers,” Amberdata’s Director of Derivatives, Greg Magadini, said.
“Should the market get there, we might see prices struggle, unless sentiment shifts further bullish,” Magadini added.
Options are derivative contracts that give the purchaser the right but not the obligation to buy or sell the underlying asset at a predetermined price at a later date. A call gives the right to buy and the put option confers the right to sell.
Gamma is one of the critical options “Greeks,” measuring how much the price of an option accelerates when the underlying asset’s price moves. The net gamma exposure determines how aggressively an options market maker needs to buy or sell the underlying asset to keep overall exposure neutral.
Bitcoin is currently changing hands just above $82,000, just 8% away from the crucial $90,000 level, according to CoinDesk data.
