Recent crypto surge could lead Bitcoin’s $90k-$100k ceiling

Market makers could play a crucial role in capping Bitcoin’s upward momentum

Somshankar Bandyopadhyay

Published: Tue 12 Nov 2024, 9:46 PM

Bitcoin’s relentless ascent has recently captured the world’s attention, with many analysts predicting further price increases.

On Tuesday, the leading cryptocurrency pushed to a new all-time peak of $89,982 and was last down 1.2 per cent to $86,945, Reuters reported.

However, a significant hurdle may lie ahead: the $90,000 to $100,000 price range. Market makers, the financial institutions that facilitate trading by providing liquidity, could play a crucial role in capping Bitcoin’s upward momentum within this zone.

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Market makers are essential to the functioning of financial markets. They buy and sell securities to provide liquidity, ensuring smooth trading and price discovery. To manage risk, market makers often employ hedging strategies. One such strategy involves selling options contracts, which grant the buyer the right to buy or sell an asset at a specific price on a specific date.

In the case of Bitcoin, market makers have sold a significant number of call options at the $90,000 and $100,000 strike prices. “These options grant the buyer the right to purchase Bitcoin at these prices, regardless of the market price. If Bitcoin’s price rises above these levels, the market makers will be obligated to sell Bitcoin to fulfill their option contracts,” said Mohamed Hashad, chief market strategist at Noor Capital.

Markets have been buoyed by investors’ expectations of business-friendly policies under a second Trump administration, including tax cuts, lighter regulation, and less enforcement of some securities laws that target cryptocurrencies. To some extent, asset prices tend to rise after a major event like the presidential election passes without disruption. However, the rise in prices — including crypto, stocks, and currencies — has been broad across parts of markets known as the “Trump trade.”

Some investors worry about the potential for inflation to reignite in the economy if the incoming administration’s promises on the campaign trail come to fruition, which could push up interest rates and government borrowing costs.

Bitcoin in particular has been booming over the past week. Just weeks before the election, Trump promoted a crypto venture, World Liberty Financial, in which several members of the Trump family have roles. The industry poured millions of dollars into the election, with prominent crypto executives, including Tyler and Cameron Winklevoss, the founders of the Gemini crypto exchange, donated large sums to support Trump. A group of super PACs also raised well over $100 million to elect pro-crypto congressional candidates.

Some investors have warned that the markets may be getting ahead of themselves, as Trump has released little concrete detail about what he actually plans to do once in office.

To hedge their exposure to these options, market makers may need to sell Bitcoin in the spot market, thereby exerting downward pressure on the price, analysts say. “This selling pressure could counteract the buying pressure from bullish investors, limiting Bitcoin’s upside potential. The extent to which market makers can influence Bitcoin’s price depends on several factors, including the size of their positions, the overall market sentiment, and the level of institutional involvement. However, their potential impact cannot be ignored, especially as Bitcoin approaches the critical $90,000 to $100,000 range,” Hashad said.

Bitcoin’s future price movement is uncertain, but the potential impact of market maker hedging on its trajectory cannot be overlooked. As Bitcoin approaches the $90,000 to $100,000 range, investors should closely monitor market dynamics and be prepared for potential price volatility, analysys say.

While the bullish sentiment surrounding Bitcoin remains strong, it is essential to consider the potential headwinds that could limit its upside potential. “By understanding the role of market makers and other relevant factors, investors can make informed decisions and navigate the complex and dynamic cryptocurrency market,” Hashad said.

Bitcoin has jumped about 32 per cent since the US election on November 5.

“Trump has vowed friendlier crypto rules and his stance is a sharp break from a crackdown on the divisive industry by the Securities & Exchange Commission under President Joe Biden’s administration. The shift has energized speculative buying of large and small tokens alike, raising the value of digital assets to about $3.1 trillion, CoinGecko data show.

“In the options market, investors are lining up bets that Bitcoin will pass $100,000 as soon as the end of the year, according to data from the Deribit exchange. Meanwhile, software firm MicroStrategy Inc. — the largest publicly-traded corporate holder of Bitcoin outside the exchange-traded fund sector — bought about 27,200 Bitcoin for some $2 billion between Oct. 31 and Nov. 10,” said Vijay Valecha, Chief Investment Officer, Century Financial.