Bitcoin Plummets, Triggering Market Maker Response and Echoing 2022 Crypto Crisis
NEW YORK – Bitcoin is experiencing a dramatic sell-off, poised for its steepest monthly decline since the collapses of TerraUSD and FTX in 2022 – a period marked by widespread industry bankruptcies. The cryptocurrency has fallen roughly 25% in November alone, breaching the key $85,000 level on November 21st.
The downturn is driven primarily by spot selling,fueled by outflows from exchange-traded funds (ETFs),the liquidation of assets from long-dormant wallets,and waning interest from momentum investors. Adding to the instability,options trading dynamics are exacerbating price swings.
As Bitcoin falls below critical price points, market makers are forced to adjust their hedging strategies - a process known as gamma exposure – which amplifies volatility. The recent break below $85,000, a concentration point for put option demand, compelled market makers to hedge considerable exposures, accelerating the decline. dealers operating in a “short gamma” state were compelled to sell more Bitcoin to maintain balance.
The next notable level is $80,000. Option models suggest hedging dynamics will reverse at this point, shifting dealers to a “long gamma” position. A further price decline below $80,000 would then reduce risk, perhaps prompting market makers to buy back Bitcoin and ease selling pressure.
These companies,acting as liquidity providers through high-frequency trading,constantly adjust positions to remain neutral. however, when prices fall below heavily traded strike prices, the resulting hedging activity can act as a self-reinforcing technical trigger.
