Bitcoin’s record-breaking rally is gaining widespread attention as it approaches the $90,000 mark, but analysts say the rally could face resistance between $90,000 and $100,000, as market-maker activity could keep the cryptocurrency’s price at that level.
Market makers, the entities that provide liquidity on exchanges and profit from the spread between bid and ask prices, play a critical role in balancing prices by maintaining a neutral position in the market. Currently, options market makers on crypto exchange Deribit reportedly have significant “gamma” exposure to $90,000 and $100,000 strike options, with large long positions at those levels.
“When market makers have positive gamma exposure, they tend to hedge by buying the asset when prices are low and selling when prices are high to stay directionally neutral,” said Greg Magadini, director of derivatives at Amberdata. This hedging practice can act as a buffer against large price swings, limiting volatility, Magadini explained.
Magadini noted that traders are buying options up to $90,000 for expiration dates of Nov. 29 and Dec. 27, while a significant amount of options are being sold to market makers in the $90,000 to $100,000 range. “If prices approach that range, market makers could trade against the trend, potentially limiting gains unless further uptrends develop,” he said.
In options trading, gamma represents how much the price of an option changes relative to the price movements of the underlying asset. For market makers, high gamma exposure means frequently adjusting their positions to stay neutral, which could mean actively selling as Bitcoin’s price rises in the $90,000-$100,000 range.
*This is not investment advice.