Bitcoin’s Price Stability at $100K Supported by Hedging Activity Amid Risks of Pullbacks
Bitcoin (BTC) and the wider cryptocurrency market are seeing strong demand for bullish leveraged positions, signaling that the market may be overheated. While market makers’ hedging activities are likely to help keep Bitcoin supported around the $100,000 mark, the rising market activity also increases the risk of pullbacks for other cryptocurrencies.
Bitcoin, the largest cryptocurrency by market capitalization, reached a record high above $103,000 early Thursday, driven by President-elect Donald Trump’s appointment of Paul Atkins as chairman of the U.S. Securities and Exchange Commission (SEC). The announcement sent traders into a buying frenzy, which led to a sharp increase in funding rates for perpetual futures. This surge indicates growing demand for long positions and suggests that the market is becoming overcrowded. In such conditions, even a minor pullback could lead to large liquidations (forced selling due to margin calls) and heightened price volatility.
According to Griffin Ardern, head of options trading and research at crypto financial platform BloFin, the options market could provide some support. When options prices increase faster than the underlying asset, creating a positive “gamma imbalance,” market makers are inclined to sell their holdings to maintain neutral exposure. In contrast, when the gamma imbalance is negative, they buy to counteract the price movement, stabilizing price swings.
“BTC can remain stable around $100,000 in the short term, supported by the hedging activity of market makers,” Ardern told CoinDesk. “This support from the options market could help mitigate the impact of deleveraging to some extent.”
The annualized funding rate for Bitcoin has surged to nearly 100%, surpassing those of highly speculative assets like Dogecoin (DOGE), according to data from VeloData. Other cryptocurrencies, including XRP, CRO, and XMR, are also seeing funding rates above 100%.
Felix Hartmann, founder and managing partner of Hartmann Capital, speculated that the recent price action may have been driven by leveraged positions. “That EOD [volume-weighted average price] suggests Saylor blew another few billion, and the [BTC] funding rates make me think this final move was purely lever-driven,” Hartmann said, referring to Michael Saylor, executive chairman of MicroStrategy, the largest publicly traded Bitcoin holder. “I wouldn’t be shocked by a 20-30% bull market correction here. 80s are fair game.”
Hartmann emphasized the need for sustained demand beyond MicroStrategy’s purchases to maintain the bull run, a sentiment shared by several analysts on social media. These observers suggest that the market will either continue to rally, justifying the costs of maintaining bullish positions, or experience a sharp downturn in the form of a correction.
Despite the support from market makers’ hedging, Bitcoin’s price volatility may return towards the end of the year.
“The positive gamma at $105,000 in options expiring on Dec. 27 could provide some stability, but once the options expire, this support will fade, increasing price uncertainty,” Ardern warned.
Options are financial derivatives that give buyers the right, but not the obligation, to buy or sell the underlying asset at a predetermined price at a later date. Call options, which are bullish, grant the right to buy, while put options give the right to sell.
