Is there a hidden motor running the Bitcoin market dynamics? Recent trends and observations suggest there might be. Alex Thorn, Galaxy’s Head of Firmwide Research, points to intriguing developments in the Bitcoin options market that could have a significant impact on the cryptocurrency’s price trajectory.
A Closer Look at the Options Market
Thorn recently noted that Bitcoin options market makers are increasingly finding themselves in a short gamma position as the spot price of Bitcoin rises. This scenario means that market makers must purchase additional Bitcoin to maintain their positions, potentially magnifying any price increases.
Furthermore, data from Amber shows dealers shifting towards a short gamma position, particularly when Bitcoin’s price exceeds $28.5k. In simpler terms, Thorn states, “At $32.5k, market makers need to buy $20 million of delta for every subsequent 1% move higher.” This situation could lead to substantial Bitcoin purchases as the spot price climbs.
What About Price Drops?
However, it’s not only upward price movements that matter. Thorn also highlights the other side of the coin. He explains, “Dealers are long gamma in the $26,750-28,250 range. When you’re long gamma & spot declines, you also have to buy back spot to stay delta neutral.” Consequently, any slight decrease in price could meet resistance as options dealers buy back to adjust their positions.
This dynamic could prove beneficial for bullish investors. As Thorn elaborates, “This is a great setup for bulls because if spot moves moderately higher, short gamma covering could make it rip much higher pretty quickly, but if it moves lower, long gamma covering could provide some support and limit near-term downside.”
Potential Catalysts in the Bitcoin Market
Thorn identifies possible catalysts that could set the Bitcoin spot price in motion, including the growing anticipation around Bitcoin ETF approvals. Figures and institutions such as Cathie Wood, Paul Grewal, JP Morgan, and several Bloomberg Intelligence analysts have recently voiced positive expectations regarding approval chances.
Bloomberg’s Eric Balchunas and James Seyffart estimate a 75% chance of a spot Bitcoin ETF by the end of this year and a 95% probability by the end of 2024. Moreover, Thorn notes Bitcoin’s recent price surge above $31,000, surpassing previous highs following false news of an ETF approval.
Aside from market sentiment and speculation, fundamental supply and liquidity dynamics also come into play. Thorn points out that Bitcoin’s limited supply and liquidity could further boost upward moves. He highlights the strength of the Bitcoin community, noting that “70% of supply has not transacted in 1+ years, 30% in 5+ years… ATHs both.”
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In conclusion, the next few months promise to be exciting for Bitcoin, as Thorn aptly puts it: “Bitcoin is the greatest show on earth.” At the time of writing, Bitcoin is trading at $30,676.
