Original Title: "A Comprehensive Explanation of How Market Makers Help Boost BTC Prices"

Source: Odaily Star Daily

Yesterday, Alex Thorn, the research director of Galaxy Digital, a cryptocurrency financial services company, wrote on the X platform that "as the spot price of BTC rises, more and more options market makers are shorting Gamma. When you short Gamma and the spot px rises, you need to buy back the spot to maintain Delta neutrality. This should amplify any short-term upward momentum in the near future."

This article will reveal what shorting Gamma is and why it will help drive BTC's rise.

Note: Readers of this article should have a basic understanding of options. Some conditions are only given as conclusions without discussing the reasons and processes. If you have a deeper interest, you can explore it on your own.

Basic Concepts and Definitions

Gamma

Gamma: Sensitivity measurement index of option Delta. The larger the Gamma, the faster the Delta fluctuates.

Delta: An indicator that measures the sensitivity of option prices to the underlying asset price. For example, if the Delta of a BTC option is 0.6, and BTC rises by 1 U, the option price will increase by 0.6.

When is Gamma positive: it is positive for buyers of call options and put options, and negative for the corresponding sellers.

How to short Gamma: Selling options is equivalent to shorting Gamma.

Delta Neutral

Delta Neutral: If an investment portfolio is composed of related financial products and its value is not affected by small price changes in the underlying assets, such an investment portfolio has the property of Delta neutrality.

As a general rule, market makers do not profit from the rise and fall of prices, but rather from the spread and fees, so market makers typically need to keep their investment portfolio Delta neutral.

On the other hand, market makers often purchase and trade actively as Makers due to market liquidity demands, which will lead to changes in their Delta. Therefore, market makers need to purchase another financial product as a hedge to maintain Delta neutrality.

Market makers help push up prices

The current situation: 1. Spot prices are rising: BTC prices have been rising continuously in recent days without any significant pullback.

Current situation 2 - Market makers shorting Gamma: First of all, Alex Thorn proposed a data "Using Amberdata's data, we can calculate the position of market makers. Our analysis shows that market makers are increasingly shorting Gamma, with a starting price of approximately $2.85 million or more."

Requirement: Due to the price increase caused by the superimposition of the current situation 1 and the current situation 2, the Delta of market makers is no longer neutral, and "more and more short Gamma" is being done. Therefore, there is a continuous increase in the demand for purchasing spot goods to achieve Delta neutrality.

Conclusion: Alex Thorn stated that "when the price reaches $32,500, market makers need to buy $20 million Delta for every 1% increase thereafter."

Gamma's Rise

The value of Gamma is usually affected by the following situations, which may cause Gamma to rise:

The shortening of remaining term: When the remaining term of an option becomes shorter.

The exercise price is close to the underlying asset price: When the exercise price of an option is close to the market price of the underlying asset.

The volatility of the underlying asset price has increased: high volatility usually leads to an increase in Gamma.

Alex Thorn said: "As spot prices rise, market makers need to buy back more and more Bitcoin, and any upward movement in the short term should be explosive." As the market rises, the amount needed for hedging also increases, further boosting the market.

Market Maker Support Range

Additionally, Alex Thorn stated: "Market makers are going long Gamma within the range of 26750-28250 US dollars. When you go long Gamma and the spot price drops, you must also buy back the spot to maintain Delta neutrality. Therefore, as option market makers buy back Delta, any short-term downward price action will face resistance."

This is a good support for the bulls, because if the spot price rises moderately, the short Gamma covering may cause it to rise sharply soon. However, if the price falls, the long Gamma covering may provide some support and limit the recent downside.」

This section is similar to the basic principles discussed earlier. When a market maker is long on Gamma, a price drop will cause its Delta to decrease. Therefore, it is necessary to purchase spot goods to increase Delta and maintain neutrality. The price proposed by Alex Thorn represents a potential support range.

Conclusion

According to DWF Labs, "when every piece of information is seen as a bullish signal, the market is bullish." The position of market makers may potentially be a driving force for upward movement, but this article aims to simply explain the impact of market maker positions on the market. The views of Alex Thorn and price ranges are only used for analysis and are for reference only.

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