A behind the scenes force may amplify bitcoin and ether price volatility

Market makers' negative gamma exposure is amplifying price volatility for bitcoin and ether, with their hedging activities likely to exaggerate price swings in both directions. These firms, which take the other side when traders place bets on crypto price movements, are currently positioned in a way that could make market movements more extreme.

Options contracts allow traders to bet on whether prices will rise or fall. When traders buy or sell options, market makers typically take the opposite side to ensure smooth market functioning. While market makers profit from small price gaps rather than directional bets, they must hedge their positions to remain market-neutral.

Negative Gamma Effect

Currently, both bitcoin and ether are experiencing deep negative gamma exposure, meaning market makers are net short options. This positioning forces them to trade with market momentum rather than against it. As prices fall, they sell to maintain neutrality, potentially accelerating the decline. As prices rise, they buy, potentially fueling further increases.

Gamma Threshold

According to Greeks.Live data, bitcoin's gamma exposure remains negative across its current trading range of approximately $58,000 to $72,000, with the largest exposures near $68,000 and $70,000. Ether shows similar patterns with negative gamma in its current price zone. This negative gamma effect could trigger a chain reaction, with small price movements potentially leading to liquidations across perpetual futures markets.

The situation would reverse if prices move above $73,000, where gamma exposure turns positive. At that point, market makers would hedge against the market, potentially reducing volatility. Until these 'gamma flip' levels are reclaimed, market participants should expect fragile order books and exaggerated price movements.