Analyst: Why can Ethereum price exceed $3,000?

Author: Omkar Godbole, CoinDesk; Compiler: Deng Tong, Golden Finance

• BloFin’s Griffin Ardern saidoptions traders may purchase ETH in the spot/futures market to hedge short bets on call options, adding to bullish momentum.

• A similar situation occurred in the Bitcoin market in November, with the price accelerating to over $36,000.

Trader hedging, a market dynamic that accelerated Bitcoin (BTC)’s upward trend in late 2023, is currently impacting the price of Ethereum (ETH).

Ethereum, the native token of the Ethereum blockchain, topped $3,000 early Thursday. Griffin Ardern, head of options trading and research at crypto finance platform BloFin, said thebreakthrough of the psychological barrier was partly due to the hedging activity of market makers or traders in the Ethereum options market.

According to Ardern, the trader or entity responsible for providing liquidity to the order book recently sold a number of call options or bullish bets at $3,000, exposing them to what is known as Negative gamma exposure. Therefore,when Ethereum rallied close to the mentioned levels, traders purchased Ethereum in the spot/futures market to hedge the upside risk and keep the overall market exposure direction neutral. Hedging activity added to the bullish momentum, pushing Ethereum above $3,000.

A similar situation occurred in the Bitcoin market in November, with the price accelerating to over $36,000.

A market maker is the entity responsible for providing liquidity to the order book. They always stand on the opposite side of client transactions, constantly buying and selling underlying assets to maintain an overall market-neutral account.

“A large amount of negative trader gamma is concentrated around $3,000, so market makers need to hedge their risk here. Negative gamma means market makers are selling at the $3,000 strike A lot of call options," Ardern noted. “To solve this problem, market makers must trade in the direction of price movement — buying Ethereum as the price rises.”

“The hedge is scheduled to begin at 6:48 a.m. today (UTC ) comes into effect," Ardern added.

Data from charting platform TradingView shows that Ethereum broke above $3,000 around 08:55 UTC, rising to a high of $3,032 by 09:50 UTC.

As early as mid-2023, market makers in the BTC and ETH options markets held positive gamma exposure and were constantly trading in the opposite direction of price, thus dampening price volatility.

However, trader activity became a positive force for Bitcoin in the final quarter, as ETF optimism fueled investor demand for call options, exposing market makers to the risk of higher prices. Recently, the narrative of Ethereum’s upcoming Dencun upgrade and spot ETF has done the same thing in the Ethereum market.