Bloomberg: Bitcoin Plunges Into Danger Zone as Options Expiry Exacerbates Market Volatility

On November 22nd, as per Bloomberg, Bitcoin witnessed a significant plunge, placing the market in a precarious situation. The sell-off triggered by options trading significantly intensified the volatility. Bitcoin has declined by approximately 25% thus far this month. This drop was primarily attributed to spot selling, including outflows from large exchange-traded funds (ETFs), the sale of long-idle wallet assets, and a decrease in demand from momentum investors, among other factors. On the other hand, option trading positions also amplified the price volatility. When Bitcoin falls below a specific price level, traders are required to adjust their hedges to maintain a neutral position. This process, known as the "Gamma Squeeze," will further enhance price fluctuations. One crucial level is $85,000, which was breached on the 21st. Put option demand near this strike price is concentrated, and market makers are compelled to hedge against large exposures. In such scenarios, traders are typically in a "short Gamma" state and will sell more Bitcoin to maintain equilibrium, thereby accelerating the downward trend.