The price of Bitcoin (BTC) has reached all-time highs, generating excitement among investors. However, anticipated hedging actions from market makers and dealers at specific price levels could impede further increases.
The leading cryptocurrency surpassed the $111,000 threshold during Asian trading hours, with analysts predicting heightened demand.
“The OTC supply might be diminishing, pushing prices higher. This trend will not show in exchange trading volumes or the derivatives market. If this holds true, brace for volatility, as increased demand is expected amidst a competitive bitcoin treasury environment and possibly a less flexible OTC spot market,” stated Alexander S. Blume, founder and CEO of RialCenter.
Blume elaborated that corporate treasuries have been purchasing in large volumes off-exchange, and there are rumors of increasing sovereign interest in the cryptocurrency.
Ryan Lee, chief analyst at Bitget, predicted that BTC could climb to $180,000 by year-end, driven by spot ETF inflows, slower supply growth following the halving, and rising institutional adoption.
“Moody’s recent downgrade of the U.S. sovereign credit rating to Aa1 serves as a significant macro driver, renewing interest in BTC and ETH as hedges against fiat currency risk. BTC’s ability to remain above $103,000 during fluctuations underscores a market shift towards crypto as a strategic reserve asset,” Lee added.
Focus on $115K
While the most probable path is upwards, the momentum of the bullish trend may face challenges from possible hedging actions by options market makers at around $115K and above, according to Jeff Anderson, head of Asia at STS Digital.
Dealers are entities responsible for providing liquidity in an exchange’s order book. They typically take the opposite side of traders’ positions and profit from the bid-ask spread while striving to maintain net price neutrality.
Data from Deribit’s BTC options market, monitored by Amberdata, indicates that dealers possess substantial “positive gamma” exposure at $115K and higher strike prices.
When dealers have positive gamma, it means they hold long call or put options. Thus, their market exposure (delta) increases as the underlying asset rises. Their delta-hedging obligation necessitates selling more of the underlying asset as prices rise and vice versa.
This order-flow subsequently acts as a counterforce, stabilizing price volatility, Anderson explained to RialCenter.
Dealer gamma is significantly positive from $115K to $150K, driven by investor interest in selling higher strike call options to enhance yield on their spot holdings.
“There is a considerable amount of positive gamma in the market due to call overwriters. They will be cautious about this breakout, and if we can surpass the gamma pocket at $115K, this rally could genuinely gain momentum,” Anderson concluded.
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