Now that the bitcoin current price has risen to over $82,000, the investors’ eyes have set on that elusive break through to the all-important $90,000 level. Luckily for them, the big issue blocking the cryptocurrency price from notching this win happens to be market makers.
Market makers are entities that provide liquidity by taking advantage of the bid-ask spread and hence play a peculiar role in controlling volatility. They need to be market-neutral, which is to say that they rebalance such that they have minimal excessive risk in one direction.
As of today, bitcoin options market makers on Deribit are said to be holding high “positive gamma” exposure at the $90,000 and $100,000 strike levels. That is, there is heavy trading selling puts and calls at these levels, leaving market makers with a bunch of longs.
How does gamma affect Bitcoin current price?
This kind of gamma positive exposure has an important effect on the bitcoin current price. Market makers with long gamma exposure tend to hedge by buying bitcoin when prices are dropping and selling when prices are increasing. This plays like a natural damper that confines the range of price swings. It may keep the price of Bitcoin ranging within $90,000 to $100,000.
According to Greg Magadini, Amberdata’s derivatives director, “We’re seeing a lot of traders buying options up to the $90,000 level for the end of November and December. But above this, in the $90,000-$100,000 range, options have been sold to dealers.” Such a signal indicates that if a new surge to a new high is to be rapid, the market will have some resistance at the $90,000 barrier point.
For that reason, options are merely financial contracts which allow traders to buy or sell properties at a given price in the future. The call option gives the right to purchase, whereas the put option gives the right to sell.
Reason why gamma is crucial when making a smart choice
A gamma is one of the frontline measures when trading options; this measures how fast the value of an option increases with movement in an underlying asset, in this instance, bitcoin. With the positive gamma that is currently being experienced, market makers will be forced to buy or sell bitcoins to make sure that the exposure is within limits, which then also affects the bitcoin current price.
Bitcoin is trading just above $82,000 around 8% from the critical $90,000 mark according to CoinDesk data. As market sentiments are improving further, it may send it above the resistance mentioned above, but at the moment, market makers are likely to keep this price stabilized within a rather narrow range near this key level.
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