Bitcoin Gains Could Trigger Further Short Squeeze, Says Galaxy Research Head

According to The Blockworks: The cryptocurrency market is picking up its momentum following a period of stagnancy, partially fueled by the renewed optimism for the likely approval of a spot US exchange-traded fund (ETF), causing a rally in Bitcoin (BTC) and Ether (ETH). Amidst this environment, Alex Thorn, the head of firm-wide research at Galaxy, has posited the possibility of a gamma squeeze for Bitcoin, the world's largest digital asset.A gamma squeeze forces options dealers to rapidly alter their spot exposure, typically resulting in volatility expansion. With negative gamma, as Bitcoin's price increases, dealers need to buy substantial amounts of Bitcoin to remain correctly hedged. "When dealers are short gamma and price moves up, they need to buy spot to stay delta neutral," Thorn explained. He revealed that if Bitcoin's price reaches the $35,750-$36,000 range, options dealers would need to buy an additional $20 million in spot Bitcoin for each 1% price rise.Thorn acknowledged the potential dampening effect of last week's options expiries but insisted that the scenario of a gamma squeeze was still feasible. He also highlighted an increasing divergence between Bitcoin held by long-term holders and Bitcoin that has moved within the last 24 hours, suggesting slackened on-chain liquidity.Thorn pointed out that based on the 4-year rolling Z-score, Bitcoin is not overvalued and is structurally sound. Interestingly, Thorn cited that 83% of Bitcoin's supply has not moved since the prices were lower than they currently are, indicating a lean cost basis between the current price and the $38,400-$39,100 range.While Thorn's reasoning found some agreement, others like Lachlan Feeney, founder and CEO of Labrys, suggested that the market would likely be calmer following last week’s activity. Thorn's comments also received a critical weighing from Le Shi, Head of Trading at Auros, who pointed out that the assumed $20 million worth of purchases per 1% might not drastically shift the context considering Bitcoin's liquidity and the probability for long gamma position holders to hedge in the opposite direction during a rally.