The cryptocurrency market is going through a phase where price movements could become more difficult to anticipate. Behind the variations of Bitcoin and Ether, the hedging strategies of market makers play an important role. According to data from Greeks.Live, their options exposure currently has a setup that could accentuate moves in both directions. This situation particularly concerns derivatives markets and could cause chain reactions during future fluctuations.
In brief
- Bitcoin and Ether have negative gamma exposure across a large portion of their trading zones.
- Market makers could amplify declines by selling and increases by buying.
- Leveraged positions are at risk of forced liquidations during sharp moves.
- A return of positive gamma above $73,000 could change the dynamics of the Bitcoin market.
Negative gamma exposure weakens the Bitcoin market
Data published by Greeks.Live shows negative gamma exposure across much of the current Bitcoin trading area. This configuration also concerns Ether, which presents a comparable structure in its options market. For BTC, the highest concentrations appear around 68,000 and 70,000 dollars. These levels constitute particularly sensitive areas for broker hedging operations.
Gamma exposure, also called GEX, measures the net gamma associated with market makers’ positions. This indicator makes it possible in particular to understand how their hedging operations can influence price variations. Positive exposure means that traders hold a long gamma position overall. In this situation, their adjustments generally tend to limit movements and stabilize prices.
Conversely, negative exposure produces different dynamics in financial markets. Market makers must then sell when prices fall and buy when they rise. These operations therefore follow the direction of the initial movement, instead of compensating for it. Therefore, this configuration can accentuate Bitcoin’s fluctuations and make sessions more unstable.
Why hedging strategies can amplify movements
Market makers play an important role in the operation of options markets. They generally take the opposite position from the investors who buy or sell these contracts. Their remuneration comes in particular from the difference between buyer and seller prices. However, they must also regularly adjust their positions to limit their exposure to asset fluctuations.
Options give investors the right to buy or sell an asset at a set price. Calls allow you to benefit from an increase in the price, while puts offer exposure to its fall. When traders seek more protection against a fall or anticipate a rise, market makers can accumulate negative exposure. They must then adapt their blankets according to the movements observed.
Adam, macroeconomic analyst at Greeks.Live, confirmed this situation to CoinDesk. According to him, Bitcoin and Ether are both moving in a deep negative gamma zone. He explains that operators must then intervene in the direction of the market to protect their positions. Thus, a decline can lead to new sales, while an increase can lead to additional purchases.
Price levels that concentrate risks on derivatives
The graph dedicated to Bitcoin by Greeks.Live allows you to better understand this exposure. On Saturday, at 12:37 UTC, the price was trading around $67,191. At this time, negative gamma covered an area between approximately $58,000 and $72,000. The largest concentrations remained located around the thresholds of $68,000 and $70,000.
This configuration could reinforce selling pressure if prices continue to decline. Hedging operations by brokers would then risk accompanying the decline rather than slowing down its evolution. However, this exposure does not automatically mean that the market will continue to decline. Buyers can always step in and support prices at lower levels.
The phenomenon also concerns perpetual futures contracts, which have no expiry date. These instruments allow investors to take positions with leverage. Adam warns that even limited downside movement could trigger forced liquidations. Platforms then close losing positions, which can add new sales to the existing pressure.
A gamma reversal could change Bitcoin’s price dynamics
The mechanism also works in the opposite direction when prices rise. A rise may force market makers to buy more assets or futures contracts. These additional purchases then risk reinforcing the initial movement. This dynamic concerns both Ether and Bitcoin, since the two markets currently present similar characteristics.
However, the Greeks.Live chart identifies an important threshold for BTC. Its gamma exposure could turn positive again above around $73,000. This level corresponds to an area where hedging strategies would gradually change behavior. Traders could then sell during upswings and buy during downturns.
This change could reduce the amplifying effect of hedging on daily variations. In the meantime, Adam believes that markets remain exposed to sharp movements. He particularly mentions fragile order books and larger intraday wicks. These conditions can make price movements particularly sensitive to the reactions of operators on derivative products.
As long as the two cryptocurrencies have not regained their respective gamma reversal thresholds, this fragility could persist. For Bitcoin, the return above $73,000 therefore represents a level to watch. The evolution of brokers’ exposure will make it possible to measure a possible change in dynamics. Until then, hedging operations could continue to accentuate both bullish and bearish movements.
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