What to know:
- Annualized funding rates of around 100% in BTC and altcoin perpetual futures markets raise the risk of sharp price pullbacks, some analysts said.
- BTC is likely to remain supported around $100,000 due to market makers’ hedging activity, one observer noted.
As a seasoned crypto investor with a decade of experience navigating the rollercoaster that is the cryptocurrency market, I can confidently say that this latest surge in Bitcoin and altcoins has me both exhilarated and cautious. The annualized funding rates reaching triple digits in perpetual futures markets are reminiscent of the dot-com bubble days, hinting at a potential sharp pullback. However, I am comforted by the fact that Bitcoin’s current price is likely to remain supported around $100,000 due to market makers’ hedging activity.
The crypto market, including Bitcoin (BTC), is seeing a high interest in bullish bets, indicating the market may be reaching a boiling point. Even though market makers’ hedging could keep BTC afloat near $100,000, this increased activity increases the chances of corrections for other cryptocurrencies.
On Thursdays morning, Bitcoin, the most valuable cryptocurrency, surpassed its previous peak at around $103,000. This surge followed President-elect Donald Trump’s announcement of his intention to appoint Paul Atkins, a supporter of digital currencies, as the head of the Securities and Exchange Commission (SEC).
The sudden increase in the price of an asset caused traders to buy aggressively, which boosted the cost for continuous future contracts, indicating a surge in demand and overcrowding in long-term investments. If there is even a small dip in this situation, it can lead to massive sell-offs (sellers being forced to offload their assets due to insufficient margins) and heightened market volatility on the downside.
According to Griffin Ardern, head of options trading and research at crypto financial platform BloFin, support for the market may come from the options market. When the prices of options increase more rapidly than the underlying asset, a situation known as “gamma imbalance,” market makers often sell their holdings to maintain a neutral net exposure. Conversely, they buy when the gamma imbalance is negative, acting as a counterforce and limiting extreme price fluctuations.
In simpler terms, Ardern stated to CoinDesk that Bitcoin (BTC) might remain steady at approximately $100,000 in the near future due to the risk management activities of market participants. This activity in the options market could potentially mitigate the effects of deleveraging to some degree.
According to VeloData’s data, the yearly return rate on Bitcoin investments has significantly increased, reaching almost 100%, even surpassing returns for purely speculative cryptocurrencies like Dogecoin. Similarly, other digital currencies such as Ripple (XRP), Crypto.com Coin (CRO), and Monero (XMR) also have funding rates exceeding 100%.
Felix Hartmann, founder and managing partner of Hartmann Capital, commented that the End-of-Day (EOD) price indicates Michael Saylor’s MicroStrategy might have invested a few more billions into Bitcoin, which has led him to believe that the recent price movement was fueled by high leverage. He also expressed that it wouldn’t surprise him if there was a significant bull market correction of around 20-30%. He added that values in the 80s are within reach as well.
Hartmann emphasized the importance of further demand beyond MSTR‘s purchases to sustain the ongoing bull market trend, an opinion shared by numerous commentators on social media. They proposed that the market could either maintain its upward momentum, validating the expenses linked with maintaining bullish positions, or experience a significant downturn in a corrective phase.
Despite continued involvement from market makers, Bitcoin’s price fluctuations may potentially increase again by the end of the year.
Arden stated to CoinDesk that a significant increase in option prices at $105,000, due to expire on Dec. 27, could potentially have a substantial impact, but following the expiration date, this influence will vanish, leading to increased price volatility.
Derivative agreements grant buyers an option, not an obligation, to either purchase or sell a specific asset at a future time and a predetermined price. Essentially, a call (or a bullish bet) allows for the acquisition of the asset, while a put confers the ability to sell it.
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2024-12-05 13:08