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Bitcoin’s relentless ascent has recently captured the world’s attention, with many analysts predicting further price increases. 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. It is worth mentioning that at the time of writing, the most famous cryptocurrency is trading at $89,300.
The Role of Market Makers
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.
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. The bond market was closed on Monday for Veterans Day.
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.
Hedging and Price Impact
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. 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.
Other Factors to Consider
While market maker hedging is a significant factor, other elements could also affect Bitcoin’s price trajectory. These include:
• Regulatory Environment: Changes in regulations, particularly in major economies, could impact investor sentiment and capital flows into the cryptocurrency market.
• Macroeconomic Factors: Global economic conditions, such as interest rate hikes, inflation, and geopolitical tensions, can influence risk appetite and asset prices.
• Institutional Adoption: Increased adoption of Bitcoin by institutional investors, such as hedge funds and pension funds, could drive demand and support higher prices.
• Network Upgrades: Technological advancements and network upgrades can enhance Bitcoin’s scalability and security, potentially attracting more users and investors.
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.
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.
Earlier on Monday, Bitcoin reached $88,000 for the first time and major stock indexes set records, as markets continued to rally following Donald J. Trump’s victory in last week’s election. The S&P 500 rose 0.1% to close above 6,000 for the first time, and the Dow Jones industrial average rose 0.7% to close at 44,293, a new high. The price of Bitcoin rose more than 10% on Monday to above $88,700.
