What to Know:
- Annualized funding rates of around 100% in BTC and altcoin perpetual futures markets raise the risk of sharp price pullbacks, some analysts warned.
- BTC is expected to find support around $100,000 thanks to market makers' hedging activity.
Bitcoin (BTC) and the wider crypto market showcase strong demand for bullish leveraged trading options, indicating market overheating. Even as market makers' hedging may help maintain BTC's value near $100,000, increased activity could lead to pullbacks in other cryptocurrencies.
Recently, Bitcoin reached a record high of over $103,000 following President-elect Donald Trump's appointment of pro-crypto Paul Atkins to lead the SEC. This surge has traders eager to capitalize on the price increase, spiking the funding rates for perpetual futures and intensifying the demand and potential market saturation for long positions, which increases the chance of significant liquidations if there are slight price declines.
Market support might derive from options trading, according to Griffin Ardern of BloFin. When options prices rise quicker than the underlying asset's, market makers often sell assets to maintain neutrality in their holdings. Conversely, when prices fall, they buy, which counteracts volatility.
"BTC can hold steady around $100,000 short-term due to market maker hedging, which may mitigate the effects of deleveraging," Ardern stated.
Funding rates for Bitcoin reached nearly 100%, surpassing rates for speculative tokens like DOGE. Other coins, including XRP and CRO, also show high funding rates.
Felix Hartmann from Hartmann Capital noted that additional interest beyond purchases from MicroStrategy is vital to sustaining the bullish trend, echoing sentiments from various social media commentators suggesting that the rally must persist to validate the costs linked with maintaining bullish positions, or risk a sharp downward adjustment. Despite market maker actions, bitcoin price fluctuations could surge as the year wraps up.
Ardern cautioned that the positive gamma nearing $105,000 before the Dec. 27 options expiration could exert substantial influence, but post-expiration, this effect might lessen, leading to heightened price volatility.
Options grant the buyer the right, without obligation, to purchase or sell the underlying asset at an agreed price later, with calls affording the right to buy, and puts allowing the right to sell.
