Analysis: Bitcoin's sharp decline has entered a dangerous zone, with options factors exacerbating market volatility

According to Bloomberg, Bitcoin has plunged sharply, putting the market in a dangerous situation. The sell-off based on options trading has further exacerbated volatility. Bitcoin has dropped about 25% so far this month. This decline is mainly caused by spot sell-offs, including outflows from exchange-traded funds (ETFs) on major trading platforms, sales of long-dormant wallet assets, and a decrease in demand from momentum investors.

On the other hand, options trading positions have also amplified price volatility. When Bitcoin falls below certain price levels, traders need to adjust hedges to maintain neutral positions, a process known as "Gamma exposure," which further amplifies price fluctuations. One key level is $85,000, which was breached on the 21st. Demand for put options around this strike price is concentrated, forcing market makers to hedge large exposures. In this situation, traders are typically in a "short Gamma" state, and to maintain balance, they will further sell Bitcoin, accelerating the decline.