Bitcoin and Ether are trading in ranges where market makers’ hedging strategies could amplify price fluctuations, potentially making the ongoing market volatility even more pronounced.

Market makers are financial firms that provide liquidity by taking the opposite side of trades when investors speculate on the future prices of Bitcoin (BTC) and Ether (ETH). Their current positioning suggests that routine adjustments to their portfolios could reinforce existing market movements.

Options are financial instruments that allow traders to bet on whether an asset’s price will rise or decline. When an investor buys or sells an option, a market maker typically assumes the opposite position, ensuring sufficient liquidity for transactions to take place.

These firms do not generally attempt to predict market direction. Instead, they earn money from the difference between buying and selling prices while managing their exposure to price movements. To maintain a neutral position, they purchase or sell cryptocurrencies and related futures contracts to offset the risks created by their options positions. This process is known as hedging.

While hedging can sometimes help stabilize markets, it can also increase volatility when dealers are positioned in a way that forces them to follow price movements. That appears to be the case for Bitcoin and Ether, according to current gamma exposure data.

Gamma exposure (GEX) measures how market makers’ options-related positions respond to changes in an asset’s price. Greeks.Live data indicates that Bitcoin is trading within a negative gamma environment, where dealer hedging could contribute to stronger price movements.

When dealers are short gamma, they generally need to sell Bitcoin or futures contracts as prices fall and buy them as prices rise. This creates additional selling pressure during downturns and buying pressure during recoveries, potentially accelerating the prevailing trend.

“Both Bitcoin and Ether have slipped into deep negative gamma territory,” Adam, a macro researcher at options platform Greeks.Live, told CoinDesk. He said the positioning reflects dealers holding net short options, driven largely by increased demand for downside puts and calls targeting potential breakouts. In such conditions, dealers must adjust their hedges in the direction of market momentum rather than against it.

Put options allow traders to position for price declines, while call options are used to speculate on upward movements.

Greeks.Live’s Bitcoin GEX chart illustrates the current dealer exposure across different price levels. Each bar represents gamma exposure at a specific price. At 12:37 UTC on Saturday, when BTC was trading near $67,191, negative gamma exposure extended from approximately $58,000 to $72,000. The largest concentrations appeared around $68,000 and $70,000.

In the updated chart, the negative gamma bar near $67,000 has become smaller, while the largest exposures remain clustered around $68,000 and $70,000. The absence of positive gamma below Bitcoin’s current price also suggests there is little dealer positioning to cushion a potential decline before the cryptocurrency approaches its June low near $57,700.

Ether is showing a comparable structure, with its price also trading inside the negative gamma zone.

The impact could extend beyond spot markets and create additional instability in derivatives trading. Adam cautioned that even a relatively small price decline could trigger cascading liquidations across perpetual futures contracts. These derivatives have no fixed expiration date, and leveraged positions can be automatically closed when traders lack sufficient funds to cover losses.

The same negative gamma positioning could also accelerate an upward move. If BTC and ETH prices begin rising, market makers may need to purchase additional coins or futures contracts to rebalance their exposure, adding further buying pressure.

A shift in market conditions could occur above $73,000, where the chart indicates gamma exposure becomes positive. In positive gamma territory, dealers generally hedge against price movements rather than reinforce them, potentially reducing volatility and limiting sharp fluctuations.

Until Bitcoin and Ether move back above their respective gamma-flip levels, where dealer exposure transitions into positive gamma, markets could remain vulnerable to thin liquidity, sharp intraday price swings and momentum-driven trading.

However, gamma exposure is not fixed. Changes in cryptocurrency prices and the expiration of options contracts can quickly alter dealer positioning, potentially changing the effect of hedging activity on market volatility.