Bitcoin’s Surge to All-Time Highs Draws Attention to $115K, Where an ‘Invisible Hand’ Could Hinder Further Gains

The price of Bitcoin (BTC) has reached unprecedented levels, creating a wave of excitement among traders. Yet, anticipated hedging strategies from market makers at specified price points might temper this upward momentum.

This prominent cryptocurrency surpassed the $111,000 threshold during the early Asian trading period, with experts forecasting an increase in demand.

“The supply in the over-the-counter market might be decreasing, which can elevate prices. However, this shift won’t show in trading volumes on exchanges or the derivatives market. If this trend continues, prepare for significant fluctuations, with an influx of demand driven by a competitive environment among corporate treasuries and potentially a more rigid OTC spot market,” stated Alexander S. Blume, founder and CEO of an investment advisory firm.

Blume noted that corporate treasuries have been purchasing Bitcoin heavily on an over-the-counter basis, and there are whispers that interest from sovereign entities is growing.

According to Ryan Lee, chief analyst at Bitget, Bitcoin could soar to $180,000 by year-end, driven by inflows from spot ETFs, a decrease in supply after the halving event, and increasing engagement from institutional players.

“The recent downgrade of the U.S. sovereign credit rating by Moody’s to Aa1 is a significant macroeconomic factor, rekindling interest in Bitcoin and Ethereum as a hedge against fiat risks. Bitcoin’s resilience above $103,000 during volatile periods underscores the market’s shift towards cryptocurrencies as strategic reserve assets,” commented Lee.

Attention on $115K

While the overall trajectory appears bullish, the rate of increase might be stifled due to potential hedging maneuvers by options market makers around the $115K mark and higher, according to Jeff Anderson, who oversees operations in Asia for STS Digital.

Market makers play a crucial role in providing liquidity to an exchange’s order book. They consistently take positions opposite to traders, profiting from the bid-ask spread, while balancing their exposure to maintain a neutral financial stance.

Insights from the BTC options market on Deribit, as monitored by Amberdata, reveal that these market makers possess substantial “positive gamma” exposure at strike prices of $115K and above.

A positive gamma indicates that market makers hold long positions in call or put options, meaning their market exposure increases when Bitcoin’s price rises. Consequently, they must sell more of the underlying asset as prices climb, leading to a counterbalancing effect.

Thus, the order flow acts contrary to market sentiment, restricting price volatility, according to Anderson’s analysis.

There exists a significant amount of positive gamma from $115K to $150K, spurred by investors interested in selling (overwriting) higher strike call options to earn added yields on their existing Bitcoin holdings.

“A lot of positive gamma exists due to those selling calls. They will likely be cautious of any upward breakout, but if we can surpass the gamma pocket at $115K, this rally could genuinely begin,” Anderson concluded.