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Market Makers' Impact on Bitcoin and Ether Prices

Unveiling the dynamics that keep cryptocurrency prices within a certain range - the so-called 'invisible hand' of market makers.

Bitcoin and Ethereum logo
Bitcoin and Ethereum logo

The Calm of Cryptocurrencies

In an unusual calm, Bitcoin (BTC) and Ether (ETH), the most valuable cryptocurrencies in the market cap, have demonstrated little price fluctuation over the past fortnight. Analysts suggest these minimal shifts may result from the market being shaped by multiple narratives and influences.

The Invisible Hand

Adding to the puzzle is the role of crypto options market makers - often called the 'invisible hand.' These entities have contractual duties to maintain a healthy level of liquidity on an exchange by being ready to buy or sell call/put option contracts at any given time. Their presence plays a significant part in keeping cryptocurrency prices within a certain range.

Market Makers in Action: Keeping the Books Balanced

Market makers sit on the other side of the traders' table, ensuring a direction-neutral environment by purchasing and selling the underlying asset in the spot or futures market as the price sways.

The Power of Positive Gamma

Over the recent weeks, investors have focused on selling call options or bullish bets. This popular strategy, aimed at generating an additional yield on spot market holdings, has left market makers with many long call positions or 'positive gamma.' This situation forces market makers to trade counter-to-spot price movements to maintain their books' balance, thus creating a price-stabilizing effect.

A Dominant Influence: Crypto Options Market

The recent pattern underscores the increasing sway of the options market over spot prices, which mirrors the standard in equity and foreign exchange markets. According to Griffin Ardnern, a volatility trader from a crypto asset management firm, the positive gamma effect could lessen after the monthly options expire.

High-Strike Price Ether Options

Ardnern warns that market makers have a significant positive gamma in the high-strike price ether options that expire in the coming months. This could create significant resistance and, potentially, a downward risk for the price of Ether.

Recent Trading Patterns: Bitcoin and Ether

Since May 12, Bitcoin has been trading within the limited range of $25,800 to $27,600, while Ether has stayed between $1,750 and $1,850. As of the time of reporting, Bitcoin and Ether were trading at $26,350 and $1,800, respectively.