Bitcoin (BTC) and the broader crypto market are showing signs of overheating, with strong demand for bullish leveraged plays. Although BTC's support price is likely to remain around $100,000 due to market maker hedging, increased activity has increased the risk of other cryptocurrencies falling.
Bitcoin, the top cryptocurrency by market capitalization, gained momentum on Thursday following President-elect Donald Trump's decision to appoint crypto advocate Paul Atkins as chairman of the Securities and Exchange Commission (SEC). It hit an all-time high of more than $103,000 in the early morning hours.
The breakout prompted traders to chase higher prices and raised interest rates on perpetual futures contracts, a sign of increased demand and overcrowding for long positions. In this scenario, a small pullback could result in a large liquidation (forced sale by the exchange due to lack of margin) and increase downside volatility.
Support could come from the options market, according to Griffin Ardern, head of options trading and research at crypto financial platform BloFin. When the option price rises faster than the price of the underlying asset, i.e. when the so-called gamma imbalance is positive, market makers tend to sell their holdings to keep their net exposure neutral. They buy when negative, acting as a contrarian force and limiting price fluctuations.
“BTC could stabilize at around $100,000 in the short term thanks to market maker hedging activity,” Prime Minister Jacinda Ardern told CoinDesk. “This support from the options market could offset the impact of deleveraging to some extent.”
According to data from VeloData, Bitcoin's annualized funding rate has risen to nearly 100%, outpacing the interest rate of purely speculative tokens like DOGE. Other coins such as XRP, CRO, and XMR also boast funding rates of over 100%.
“That E.O.D. [volume weighted average price] Thaler suggests he blew billions more, [BTC] “Given the funding rate, we suspect this final move was purely lever-driven,” said Felix Hartman, founder and managing partner of Hartman Capital. he said, referring to Michael Saylor, executive chairman of MicroStrategy, the publicly traded owner of . Shocked by the 20-30% correction in a good old bull market here. The 80s is fair game. ”
Hartman emphasized that additional demand beyond MSTR purchases is needed to sustain the bull market, a view echoed by several observers on social media. They suggested that either the market would continue to rise, justifying the costs of continuing to make bullish bets, or it would undergo a sharp correction and fall.
Even with market maker activity, Bitcoin price volatility could return towards the end of the year.
“The positive gamma of $105,000 on options expiring on December 27 may provide enough gravity, but that disappears after expiry, increasing price uncertainty,” Ardern said. told CoinDesk.
Options are derivative contracts that provide the buyer with the right, but not the obligation, to buy or sell an underlying asset at a preset price. A call or bullish bet gives you the right to buy, while a put gives you the right to sell.
This article was originally published on Coindesk
