Hidden Market Force Could Trigger Bigger Bitcoin and Ethereum Price Swings

Both Bitcoin and Ether are currently trading within price ranges where market makers and dealers could contribute to increased market volatility.

The key factor is market makers, the firms that take the opposite side of trades when investors speculate on the direction of Bitcoin (BTC) and Ether (ETH). Their regular hedging activity could now intensify price movements in both cryptocurrencies.

Here is how it works. Options are financial contracts that allow traders to speculate on whether an asset’s price will rise or fall. Whenever someone buys or sells an option, a market maker typically takes the opposite position. This ensures that buyers and sellers are available, helping maintain liquidity and keep the market functioning efficiently.

Market makers, also known as dealers, do not primarily aim to predict market direction. Instead, they earn money from the difference between buying and selling prices while trying to avoid directional exposure. However, price fluctuations can leave them exposed to market movements. To offset that risk, they purchase or sell cryptocurrencies or related futures contracts, bringing their portfolios back to a market-neutral position. This process is known as hedging.

Such hedging activity can either reduce volatility or amplify price movements. At present, it appears to be doing the latter. The reason lies in market makers’ positioning, which is tracked through gamma exposure (GEX). Data from Greeks.Live indicates that Bitcoin is experiencing negative, or short, gamma exposure across its current trading range.

This means market makers may sell cryptocurrencies or futures as prices decline to rebalance their positions. Conversely, if prices climb, they may need to buy additional assets or futures. These transactions could reinforce the prevailing market direction and make price swings more pronounced.

“Bitcoin and Ether have both moved into deeply negative gamma territory,” Adam, a macro researcher at options trading platform Greeks.Live, told CoinDesk. He explained that significant negative GEX indicates dealers hold net short options positions, largely because traders are increasing demand for downside protection through puts or purchasing calls in anticipation of a breakout. In a short-gamma environment, dealers must trade alongside the prevailing market trend rather than against it to maintain their hedges.

Puts are options that benefit from falling prices, while calls are designed to benefit from rising prices.

Greeks.Live’s Bitcoin GEX chart illustrates this positioning. Each bar represents market makers’ gamma exposure at a particular price level. At 12:37 UTC on Saturday, when Bitcoin was trading near $67,191, the chart showed red bars, indicating negative gamma, across the $58,000–$72,000 range. The largest exposures were concentrated around $68,000 and $70,000. There was no positive gamma below the current market price, suggesting limited protection against a potential decline until Bitcoin approaches its June low near $57,700.

The latest chart also shows that the negative gamma bar around $67,000 has become smaller, while the largest exposures are now concentrated near $68,000 and $70,000.

Ether’s GEX chart reflects a similar pattern, with the cryptocurrency trading within a negative gamma zone.

Market makers’ hedging activity could also trigger a broader chain reaction across derivatives markets. Adam warned that even a relatively modest price decline could develop into widespread liquidations in perpetual futures markets. These contracts have no expiration date. Liquidations occur when leveraged positions, which use borrowed funds, are forcibly closed after prices move against traders.

Negative, or short, gamma can intensify upward movements as well. If Bitcoin and Ether begin recovering from current levels, market makers may have to purchase assets as prices rise, potentially accelerating the rally.

However, this dynamic could change if prices move above $73,000, where the chart indicates gamma exposure turns positive. Under positive gamma conditions, market makers generally hedge against prevailing price movements, potentially helping limit volatility rather than amplify it.

“Until BTC and ETH recover their respective gamma-flip levels—the price points where dealer positioning shifts back into positive gamma—markets could remain vulnerable to thin order books, sharp intraday price swings and momentum-driven trading.”

Gamma exposure is not static. It changes as cryptocurrency prices fluctuate and options contracts approach expiration, meaning market makers’ positioning and its potential impact on volatility can shift quickly.

About The Author

ctleditor

See author's posts