Why Bitcoin’s Record Price Rally May Be Choked Between $90K and $100K?

As an analyst with over two decades of experience in traditional finance and a keen interest in the cryptocurrency market, I can confidently say that the current Bitcoin (BTC) rally presents a fascinating blend of opportunity and risk.

Despite Bitcoin (BTC) appearing increasingly unstoppable with its escalating price rise, there’s one factor that could temper its climb beyond $90,000, possibly keeping it within a price range above this threshold.

Market makers and dealers serve as the driving force behind the market – they’re the ones who ensure there’s always liquidity available by offering buying and selling prices (the bid-ask spread). Their goal is to keep their positions balanced, aiming for market neutrality.

At the moment, it seems that those involved in the Bitcoin options market on Deribit exchange hold a substantial amount of “gamma” exposure at $90,000 and $100,000 strike options. In simpler terms, traders/investors have sold these options, which puts market makers (who always take the opposite position) in a situation where they own a large number of long positions for Bitcoin, potentially benefiting if the price rises to those levels.

Market makers often adjust their positions when they have a long or positive gamma exposure. In simple terms, this means they purchase the underlying asset when its value decreases and sell it during an increase. By doing so, they aim to maintain a balanced position, which can be thought of as neutralizing their directional exposure. This hedging strategy functions as a sort of buffer against extreme price fluctuations, thus limiting the magnitude of market swings.

As a researcher examining Bitcoin, I anticipate that market makers might engage in trading strategies counter to the market trend within the price range of $90,000 to $100,000. This activity would serve to limit price fluctuations and maintain a bounded price range, assuming other factors remain constant.

According to Amberdata’s Director of Derivatives, Greg Magadini, a significant number of traders have purchased options that could potentially mature at around $90,000 on both November 29th and December 27th. However, the price range from $90,000 to over $100,000 has been sold to dealers.

If the market reaches that point, it’s possible that prices could face difficulties, but only if the optimistic feelings don’t become even more intense. Magadini noted this.

Derivative contracts, simply put, are agreements that grant the buyer an opportunity, yet not a requirement, to either purchase or sell an underlying asset at a specified price in the future. With a call option, one acquires the ability to buy the asset, while a put option provides the right to sell it.

As a crypto investor, I understand that Gamma is a significant factor among the “Greeks” which gauges the rate at which an option’s price changes when the value of the underlying cryptocurrency fluctuates. The net gamma exposure indicates how quickly and decisively an options trader must adjust their holdings in the underlying crypto asset to maintain a balanced risk position.

At the moment, Bitcoin is being traded slightly over $82,000, which is about 8% shy of the significant $90,000 mark, based on information from CoinDesk.