Analyst: Why can Ethereum price break through $3,000?

• BloFin’s Griffin Ardern said options traders may be buying 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 prices accelerating to over $36,000.

Trader hedging, a market dynamic that accelerated Bitcoin’s (BTC) uptrend in late 2023, is currently affecting Ethereum’s (ETH) price.

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

According to Ardern, traders or entities responsible for providing liquidity to the order book recently sold many call options or bullish bets at $3,000, exposing them to what is known as negative gamma risk exposure. Therefore, when Ethereum rebounded close to the above level, traders bought Ethereum in the spot/futures market to hedge the upside risk and keep the overall market exposure direction neutral. The hedging activity strengthened the bullish momentum and pushed Ethereum above $3,000.

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

Market makers are entities responsible for providing liquidity to the order book. They always stand on the opposite side of the client's trades, constantly buying and selling the underlying asset to maintain an overall market neutral book.

“A lot 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 a lot of call options at the $3,000 strike,” Ardern noted. “To counter this, market makers have to trade in the direction of price action — buying Ethereum as the price goes up.”

"The hedge came into effect at approximately 6.48am (UTC) today," Ardern added.

Data from charting platform TradingView showed Ethereum surpassing $3,000 around 08:55 UTC and 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 continuously traded against the price direction, thereby suppressing price volatility.

However, trader activity became a positive force for Bitcoin in the last quarter, as ETF optimism fueled investor demand for call options, exposing market makers to rising price risk. More recently, Ethereum’s upcoming Dencun upgrade and the spot ETF narrative have done the same for Ethereum markets.