Alex Thorn, head of research at Galaxy, discussed the potential price movement of Bitcoin, especially in the short term. He explained that the options market dynamics play a crucial role as Bitcoin’s spot price increases due to anticipation around Bitcoin ETF approval. Thorn explained that a surge in Bitcoin’s spot price, propelled by ETF anticipation, could trigger an explosive price movement. This happens because many market participants have purchased call options to express their bullish outlook on Bitcoin’s future price.
In an interview with Unchained Crypto, he expressed that they expect an impact on Bitcoin’s spot price to follow a similar trajectory. Their analysis suggests that inflows to Bitcoin ETFs could result in a 75% increase in the spot price based on the initial year’s inflow of $14 billion.
When discussing whether the same percentage increase would apply to the launch price, Alex mentioned that the analysis begins explicitly with the price when the report was written. Based on this analysis, the spot price could reach approximately $47,000, but the exact figure was not provided. For instance, if the current price were $35,500, this analysis could suggest a potential increase of around $26,000, pushing the price to the low $60,000s, which Alex considers a reasonable outcome, given the circumstances.
Thorn suggested that the market has started to reprice the likelihood of ETF approval, contributing to the upward momentum in Bitcoin’s price. What makes this scenario particularly intriguing is the involvement of options market makers. They have been increasingly taking short gamma positions. In simple terms, being short gamma means that these market makers must buy back spot Bitcoin to maintain a delta-neutral portfolio when the spot price rises.
Gamma refers to the rate of change in an options position’s delta for a 1% move in the underlying asset’s price. Thorn’s chart illustrates the dealer’s short gamma position, with maximum pain for options dealers around the $32,500 price level. As the spot price approached this level, the options market makers were forced to buy Bitcoin, driving a rapid price increase to $35,000 before a partial retracement.
Source: coinpedia.org