bitcoin market dynamics have recently taken an interesting turn, suggests Alex Thorn, head of enterprise-wide research at Galaxy. According to his recent thread On X, options market makers on btc are currently trading in a position that could significantly amplify any bullish move in its price.
“Options market makers on bitcoin have increasingly short range as the btc spot price rises. (…) This should amplify the explosiveness of any short-term bullish movement,” says Thorn.
This implies that as the spot price of bitcoin rises, these market makers have to buy back more cryptocurrencies to maintain their positions, a phenomenon that could potentially amplify price increases.
The biggest show on earth: bitcoin
Furthermore, he highlighted that Amber data indicates that dealers are increasingly moving towards a short gamma position, especially when the btc price is above $28.5k. In more explicit terms, Thorn explains: “At $32.5k, market makers need to buy $20 million of delta for each subsequent 1% move.” Such positioning suggests that market makers may have to make substantial purchases of bitcoin as the spot price continues to rise.
However, it is not just upward movements that are affected. Thorn also sheds light on the other side of the coin. “Dealers have a long range in the range of $26,750-28,250. When holding long positions in gamma and spot dips, you also have to buy back in spot to maintain delta neutrality,” she says. This means that any minor downward adjustment in price could encounter resistance as options traders make the necessary purchases to realign their positions.
For bullish investors, this dynamic presents an attractive outlook. Thorn clarifies: “This is a great setup for bulls because if spot moves moderately up, short gamma hedging could cause it to go much higher quite quickly, but if it moves down, long gamma hedging could provide some support and limit short-term declines. “
Thorn highlighted potential catalysts that could set bitcoin‘s spot price moving and noted the growing anticipation around bitcoin ETF approvals. More recently, well-known figures and institutions such as Cathie Wood, Paul Grewal, JP Morgan, and several Bloomberg Intelligence analysts have expressed positive sentiments about the chances of approval.
Bloomberg’s Eric Balchunas and James Seyffart predict that the odds of a spot bitcoin ETF are 75% by the end of this year and 95% by the end of 2024. Additionally, Thorn mentions the recent rise in bitcoin price above of $31,000, suggesting that it surpassed last month’s highs following the fake news of an ETF approval.
Beyond market sentiments and speculation, fundamental supply and liquidity dynamics also play a role. Thorn mentions: “bitcoin’s currently limited supply and liquidity could also serve to amplify bullish moves.” In particular, bitcoin exchange balances have plummeted to levels not seen since 2018.
At the same time, smaller entities are accumulating bitcoin, while larger holders, often referred to as “whales,” appear to be reducing their positions. He underlines the strength of the bitcoin community with a note on hodlers: “70% of supply hasn’t transacted in over 1 year, 30% in over 5 years… ATH, both.”
With all of these dynamics at play, Thorn aptly summarizes the current state of the bitcoin market: “The next few months are going to be very interesting – bitcoin is the biggest show on earth.”
At the time of publication, btc was trading at $30,676.
Featured Image from LinkedIn, Chart from TradingView.com
