Market makers are positioned with negative gamma exposure across the range where bitcoin and ether now trade. Their hedging could push prices further in whichever direction they move. The picture may change if bitcoin climbs above about $73,000.
Market makers' routine hedging may now amplify price swings in bitcoin and ether, according to CoinDesk. The firms that take the other side of options trades are positioned in a way that could make moves bigger.
How dealer hedging works
When a trader buys or sells an option, a market maker usually takes the other side. Market makers, also called dealers, do not try to predict prices. Price moves leave them exposed to direction anyway, so they buy or sell coins, or futures tied to them, to return to market-neutral.
That hedging can calm the market or widen its swings. The deciding factor is gamma exposure, or GEX, which according to Greeks.Live is negative across the price range where bitcoin is currently trading.
Negative gamma pushes dealers to trade with the move
As a result, dealers are likely to sell coins or futures as prices fall and buy them as prices rise. Adam, a macro researcher at Greeks.Live, told CoinDesk: "dealers must trade with the prevailing momentum, not against it." He described both assets as having slipped into deep negative gamma territory.
Greeks.Live's chart shows bars in red from about $58,000 to $72,000 at 12:37 UTC on Saturday, with bitcoin near $67,191. The biggest bars sit near $68,000 and $70,000. Nothing softens a drop until the area around the June low of $57,700, because the chart shows no green below the current price.
Liquidations could snowball
Adam said even a small dip can snowball into a wave of liquidations across perpetual futures. Those are futures contracts with no expiry date.
The effect works in both directions. If prices start rising, market makers will likely buy into the rally and accelerate the move higher. However, above $73,000 the chart shows gamma turning positive, and dealers would then hedge against the market, potentially arresting volatility.
GEX changes as prices move and contracts expire, so the picture can shift fast.
Source: CoinDesk
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