Ethereum surpassed the $3,000 mark early Thursday, a major milestone due in part to hedging activity by market makers in the ETH options market.
This view comes from Griffin Ardern, head of options trading and research at cryptocurrency financial platform BloFin.
According to Ardern, market makers, responsible for providing liquidity to orders, have recently sold many call or bull positions at $3,000. This exposed them to a risk called negative gamma. As ETH approached this level, market makers purchased Ethereum on the spot and futures markets to protect themselves from potential upside risks and maintain overall market risk neutral.
According to the analyst, this hedging activity contributed to the bullish momentum, pushing ETH above the $3,000 mark.
Interestingly, a similar pattern was observed in the Bitcoin market in November, with price increases exceeding $36,000.
Market makers, the entities tasked with providing liquidity to order books, are always on the opposite side of customer transactions. They constantly buy and sell the asset they are interested in to maintain a market-independent ledger.
Ardern said the following regarding the issue in her statement:
“Most of the negative market making is concentrated around $3,000, so market makers need to hedge risk there. A negative gamma means the market maker is placing a lot of trades at the $3,000 strike price. “To manage this situation, market makers must trade in the direction of price movement, purchasing ETH when prices rise.”
As of mid-2023, market makers on the BTC and ETH options markets had positive gamma exposure and were consistently trading against the price direction, limiting price volatility.
*This is not investment advice.
