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Bitcoin Gamma Squeeze: If BTC Hits $36,000, Expect Another Price Explosion

Last Updated November 2, 2023 4:04 PM
Nikola Lazic
Last Updated November 2, 2023 4:04 PM

Key Takeaways

  • Derivatives drove the previous BTC rise and will likely drive the next.
  • Options trading data points to a $36,000 Gamma Squeeze zone.
  • Chart analysis supports this assumption.

Bitcoin experienced a parabolic surge, hitting a new yearly peak of $35,100 on October 24. However, this meteoric rise was succeeded by a period of stagnation, and for over a week, the market has been characterized by sideways movement. As the market settled into this calm phase, many wondered what might be on the horizon for this leading cryptocurrency.

While analysts often turn to chart analysis for insights, when it falls short, they explore on-chain data and liquidity. Alex Thorn is one such analyst who recently outlined a potential scenario in which Bitcoin’s price could be gearing up for another parabolic ascent if the current price trend continues.

What is gamma squeeze?

Let’s begin by delving into the concept of a gamma squeeze. This term is used to describe a phenomenon in options trading where the price movement compels trading in the underlying asset.

Similar to the dynamics of a short squeeze or a long squeeze, in which price levels trigger actions due to liquidity positions, it forces prior buyers to sell and vice versa. What sets this apart is its relevance to options trading, where gamma and delta principles are essential.

To grasp gamma fully, one must first understand delta. Delta measures the expected change in an option’s price with a 1-point shift in the underlying asset, such as Bitcoin. For instance, if a call option possesses a delta of 0.5, the option’s price will increase by 50 cents for every $1 rise in the cryptocurrency’s price.

Now, let’s introduce gamma. Gamma plays a role in determining how delta changes with that 1-point move in the underlying asset. If gamma is 0.1, and the asset’s price increases by $1, the delta will rise from 0.5 to 0.6.

Think of gamma as the acceleration factor. While delta informs you about the rate of the option’s price shift, gamma reveals how much that rate is accelerating or decelerating.

Traders closely monitor gamma because it provides insights into how an option’s value will fluctuate with shifts in the underlying asset’s price. This is particularly valuable for active options traders as it aids in risk management and decision-making regarding trading strategies.

Essentially, gamma is crucial for options traders, aiding in predicting price changes in asset-linked options and facilitating risk management and strategy development.

Bitcoin Gamma Squeeze 

Now that we have a solid understanding of gamma and delta and how they operate, let’s explore some recent discoveries made by Alex Thorn, who serves as the Head of Firmwide Research at Galaxy.

In a X post , which has garnered the attention of 509.8K individuals, he articulated a compelling observation. Thorn mentioned that “if BTCUSD ascends to the $35,750-36k range, options dealers will find themselves in the position of procuring $20 million worth of actual BTC for each 1% upward price movement. This situation has the potential to trigger significant market dynamics if we indeed approach these price levels.

Total Dealer Gamma at Spot BTC Levels Oct. 29
Total Dealer Gamma at Spot BTC Levels Oct. 29

He further added : “When dealers are short gamma and price moves up, or when they are long gamma and price moves down, they need to buy spot to stay delta neutral. Last week’s expiries will dampen potential explosiveness, but it’s still in play.”

Total Dealer Gamma at Spot BTC Levels Oct. 22-29
Total Dealer Gamma at Spot BTC Levels Oct. 22-29

 

While not definitive, this analysis reveals key derivatives market dynamics that may exert influence soon.

Bitcoin Price Analysis 

This theory matches our chart analysis outlook, which we published yesterday, October 30. In that analysis, we pointed out that this sideways range seen from October 24 is most likely a wave 4 started from a larger five-wave impulse. 

Bitcoin price prediction
Bitcoin price prediction

Anticipation of another higher high is on the horizon, possibly targeting $38,600 and potentially nearing $40,000. This ongoing uptrend, originating from a lower-degree impulse that began on November 21, may eventually be followed by a significant correction.

This analysis strongly suggests a high likelihood of Bitcoin surging past the $36,000 mark, potentially in a parabolic fashion. Should it reach $40,000, this would represent an additional 18% increase from the current levels.

Disclaimer

Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.

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