• 28 May, 2024

Analyst Explores BTC’s Value Surge and the Short Gamma Conundrum

Bitcoin is once again commanding attention with its remarkable surge in value. However, a nuanced development within the cryptocurrency market, first reported on the X platform by Alex Thorn, Head of Firmwide Research, has piqued the interest of seasoned analysts. This development revolves around the increasingly prevalent short gamma position held by options market makers as Bitcoin’s spot price experiences an upward trajectory.

According to Thorn, the intricate world of options trading unveils an exciting narrative as market makers grapple with their short gamma positions amid Bitcoin’s price volatility. When these market participants find themselves short gamma and Bitcoin’s spot price begins its ascent, they face a dilemma. To maintain delta neutrality, they must initiate buy-backs of spot Bitcoin. 

Paradoxically, this imperative to buy back spot Bitcoin during upward price movements can amplify short-term surges’ intensity. Conversely, when market makers are long gamma and the cryptocurrency’s price experiences a decline, they are compelled to engage in spot Bitcoin purchases to sustain their delta-neutral status, potentially softening the blow of downward price movements.

A deeper dive into the data, sourced from Amberdataio, as per Thorn, reveals a clear trend: dealers have been increasingly adopting short gamma positions, particularly as Bitcoin’s price crossed the $28.5k threshold. A noteworthy threshold emerges at $32.5k, where market makers must purchase $20 million worth of delta for every subsequent 1% price increase. This implies that as Bitcoin’s spot price climbs, market makers are destined to accumulate more Bitcoin, potentially fueling rapid and pronounced upward movements.

Adding to the intrigue is that dealers currently hold a long gamma position within the price range of $26,750 to $28,250. In practical terms, this signifies that options dealers will actively buy back delta positions if Bitcoin’s spot price witnesses a short-term decline. This can provide substantial support and limit the extent of near-term price downturns.

Several pivotal factors underpin this captivating market setup. Foremost among these is the mounting anticipation surrounding Bitcoin ETF approvals. Influential figures such as Cathie Wood, Paul Grewal, JPM, and Bloomberg have all voiced optimistic sentiments regarding Bitcoin’s prospects for the year’s end. Additionally, the constricted supply and liquidity dynamics intrinsic to Bitcoin may serve as potent amplifiers of upward price movements.

Presently, Bitcoin is valued at $30,231.55, with a 24-hour trading volume of $10,877,385,477. In the past 24 hours, Bitcoin has registered a 0.71% increase in value. Retaining its dominant stature in cryptocurrency, Bitcoin boasts a market capitalization of $590,159,976,899, with a circulating supply of 19,521,325 BTC coins and a maximum supply capped at 21,000,000 BTC coins.

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