Bitcoin drop hits market makers in fragile trading landscape

One of those levels — $85,000 — was breached earlier Friday. That strike had attracted heavy demand for put options, leaving market makers on the hook to hedge large exposures. In this setup, dealers are typically “short gamma,” meaning they sell more Bitcoin as it falls to stay balanced — a dynamic that can compound downward moves. These firms, often high-volume liquidity providers, aim to remain neutral by adjusting their exposure as prices shift. But when Bitcoin breaks through heavily traded strikes, that hedging activity can act as a technical accelerant.

The next key level is $80,000, where options models show the hedging dynamic flips. Around $85,000, dealers were “short gamma,” meaning falling prices increased their risk, prompting more selling to stay hedged. But near $80,000, their positioning flips: they become ‘long gamma,’ where further declines reduce their risk and require them to buy Bitcoin to stay balanced — a shift that can soften the blow of continued selling. Bitcoin was trading at about $85,130 as of 5:18 p.m. in New York on Friday.

Traders have loaded up on put options at both strike levels, according to Deribit — raising the pressure on dealers who sold those contracts. The impact of dealer hedging is more of a technical accelerant than the primary driver of the decline, but it underscores how market depth has weakened in recent weeks. And that’s leaving fewer buy orders on major exchanges to soften sharp drops. When trading thins out like this, even ordinary selling can move prices farther and faster than it otherwise would.

“Based on dealer inventory for BTC options on Deribit, also known as the gamma exposure levels, dealers will be accelerating a move lower until Bitcoin hits $80,000,” said Greg Magadini, director of derivatives at Amberdata. “At $80,000, dealers are long gamma once again forcing them to be BTC buyers at those prices.”

While the options market is contributing to the recent volatility, the bulk of crypto derivatives activity sits in perpetual futures, and those are flashing similar distress. Open interest remains elevated, but many bullish traders are trapped in losing positions. With prices falling, forced liquidations are beginning to cascade, triggering automatic sell orders that deepen the rout.

Buy orders had been stacked near prior highs around $98,000, in an effort by bulls to catch a rebound. But with Bitcoin plunging through $85,000, those bids are being left behind.

The downward pressure has been reinforced by outflows from several large Bitcoin exchange-traded funds, which had been a steady source of demand earlier in the year. As those funds shrink, they remove a layer of buying interest that previously helped steady the market during sharp swings. That loss of steady inflows has also made the market more sensitive to routine selling, because there is less passive demand to offset it.

These overlapping dynamics — earlier hedging flows, forced futures selling, and a thinner market — are not unique to crypto. They can surface in any fast-moving market when selling meets shallow liquidity and large players try to manage risk at the same time.

Similar patterns emerge in stocks, bonds and commodities when rapid moves collide with risk-control strategies used by market players. Traders say attention is now focused on the $80,000 level. A clean break below it could trigger stabilizing flows from dealer hedging — but with momentum sellers still active, any bounce may be short-lived.