Bitcoin Could Go Crazy Above $36K, Options Data Suggests

Bitcoin options dealers or market makers are likely to trade in the direction of the market above $36,000, accelerating price gains.

AccessTimeIconNov 1, 2023 at 6:45 a.m. UTC
Updated Nov 1, 2023 at 9:13 a.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

Bitcoin (BTC) could see rapid price gains once it tops the $36,000 mark, the recent positioning of options market makers suggests.

Options are derivative contracts, offering the purchaser the right but not the obligation to buy or sell the underlying asset at a preset price at a later date. A call or a bullish bet gives the right to buy, while a put confers the right to sell.

The demand for higher strike price call options has recently increased, with bitcoin rallying nearly 27% in the past four weeks. That has left market makers with a significant net short gamma exposure above $36,000, according to data tracked by Amberdata and Galaxy Digital. Options gamma is the rate that delta will change based on a $1 change in bitcoin’s price. Delta measures the sensitivity of options prices to the change in bitcoin's price.

When market makers or dealers are net short gamma, they buy the underlying asset in the spot market as its value increases to stick to their mandate of maintaining an overall delta or market-neutral exposure. The hedging activity often accelerates the rally, often called a “gamma squeeze,” and likely played a role in BTC’s recent quick ascent from $30,000 to $35,000.

“If BTCUSD moves higher to $35,750-$36,000, options dealers will need to buy $20 million in spot BTC for every 1% upside move, which could cause explosiveness if we begin to move up towards those levels,” Alex Thorn, head of firmwide research at Galaxy Digital, said on X.

Dealers or market makers are entities tasked with creating order book liquidity and are always on the opposite side of investors’ trades. They make money through the bid-ask spread and always strive to maintain a direction-neutral portfolio.

The present positioning of market makers and its expected impact on the spot price contrasts the situation early this year when market makers were net long gamma and bought low and sold high in the spot/futures market to keep their books neutral. That further added to the volatility lull in the market.

Edited by Parikshit Mishra.


Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.

Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.