Preface

The cryptocurrency market is once again sparking intrigue as Bitcoin's (BTC) price edges closer to the $90,000 mark. This level is significant mainly due to the current operations of options market makers, who play a critical role in maintaining liquidity and market neutrality. Their activities could potentially introduce increased volatility in the marketplace. This article delves into the mechanics behind these operations and the implications for Bitcoin's price potential.

Lazy bag

As Bitcoin approaches $90K, market makers could induce volatility. Options markets are poised to influence BTC's trajectory significantly, introducing opportunities and risks for investors.

Main Body

Bitcoin's dynamic market landscape is attracting attention as the cryptocurrency hovers around the pivotal $90,000 benchmark. This threshold is not only a psychological milestone but also a critical juncture influenced by the strategies and actions of options market makers (MMs). These entities exist to provide liquidity, standing ready on the opposite side of investor trades while striving to maintain a neutral market stance. This delicate balance is achieved through strategic hedging, utilizing both spot and futures markets.

By operating within the bid-ask spread, market makers earn profits. Yet, they face the challenge of managing various aspects influencing their market positions. According to data from Deribit and tracked by Amberdata, MMs currently adopt a "short gamma" stance at the $90,000 price point. Such a position means that as Bitcoin's price approaches this level, market makers must engage in active buying and selling to preserve neutrality—buying when prices rise and selling as they decrease.

This need for frequent adjustment introduces an inherent volatility, which Griffin Ardern from BloFin Academy notes can impact market stability post-settlement, possibly pushing prices upwards. Gamma, representing the sensitivity of an option's price to shifts in the underlying asset's price, becomes a focal point for analysis here, enhancing the understanding of the options landscape during periods of turbulence.

Notably, when MMs hold a long gamma position, their trading behavior supports consolidation, unlike the impact of a short gamma. Reflecting on last year's data reveals past long gamma positioning at $90,000 and $100,000, suggesting periods of stability and consolidation between these levels.

Upcoming settlements are poised to amplify these effects, with the $90,000 mark showing significant negative delta characteristics. This essentially implies that market maker actions around this level are set to contribute substantially to potential price swings.

Furthermore, Ardern compares the upcoming gamma profile of BTC to that of the PAXG token, illustrating how options nearing settlement impact both assets similarly. PAXG's price behavior, which experiences support post-decline and resistance upon rising, mirrors the anticipated BTC patterns, suggesting a broad spectrum of volatility moving forward.

Key Insights Table