Recent data from Amberdata and Galaxy Digital suggests a swift surge in Bitcoin’s
price beyond $36,000 may be on the horizon. This prediction is based on the strategies currently employed by options market makers.
Bitcoin’s recent 27% rally has led to increased demand for high strike price call options. This demand has resulted in substantial net short gamma exposure above $36,000 for market makers. To maintain a direction-neutral portfolio, these market makers have been increasing their purchases of the asset in the spot market as its value rises. This strategy, known as a “gamma squeeze,” can accelerate the rally.
Galaxy Digital’s research suggests that if Bitcoin’s price hits between $35,750 and $36,000, options dealers would need to buy $20 million in spot Bitcoin for each 1% rise. Such a scenario could potentially trigger a significant surge in Bitcoin’s price.
This current trend contrasts with the situation earlier this year when market makers were net long gamma. They maintained their books neutral by managing the bid-ask spread in the spot/futures market, which resulted in a volatility lull.
Options are financial derivatives that allow buyers to transact an asset at a preset price later. The current bullish sentiment within the Bitcoin options market is indicative of traders’ anticipation of a further increase in Bitcoin’s price.