A topic worth exploring from this linked article of nostr:npub1pyp9fqq60689ppds9ec3vghsm7s6s4grfya0y342g2hs3a0y6t0segc0qq

https://bmpro.substack.com/p/bitcoin-volatility-is-back

The interrelations/reflexive effects between derivatives #bitcoin markets (futures/options) and spot market. What I am trying to understand here is whether there is an opportunity for manipulation of the BTC price. Dylan says: "When market participants sell volatility through options, market makers respond by adjusting their hedges in the underlying asset, creating a stabilizing “pinning” effect near certain price levels where there is substantial open interest. To maintain a neutral position, market makers dynamically buy or sell the underlying asset in response to price movements of options, reinforcing the pinning effect. This equilibrium, however, can be shattered by unexpected events or shifts in sentiment, causing market makers to rapidly re-hedge. This leads to a sudden and significant price and volatility movement, reflecting the delicate and interconnected nature of options trading, market making and asset dynamics. This is precisely what occurred yesterday."

Then he mentions the Deribit options market as the place where all this happened. But my understanding is that this market is not PHYSICALLY settled (meaning that the option bets are settled in fiat and not in BTC) therefore there is no feedback loop between the spot market and the derivatives market as there is in the Gold futures market which can be settled physically. Only the OKEx market is settled in BTC.

I would instead make a case for manipulation in the spot market to benefit someone's derivatives bets. I would rather argue that the triggering event was a massive spot market liquidation to bring down the spot price and benefit from derivatives bets. For instance: I am a market maker selling call options to market participants who bet heavily long on a BTC price breaking above US$ 28.500 which was quite likely for technical analysis (important 100 MA and 200 MA levels converging).

I throw a load of BTC on the market and I cause this to be the peak of the moment. I clearly sell at a profit. This causes a cascading effect and compresses the price to the US$ 26.000 level. I also cash in all the call options I sold which then expire out of the money. Then I switch sides and go long the futures and options markets at the 26.000 level and reinvest the profits made from the first washing cycle buying spot BTC to lift the price. A large enough BTC whale can play this game over and over.

I wonder what are the thoughts of nostr:npub1a2cww4kn9wqte4ry70vyfwqyqvpswksna27rtxd8vty6c74era8sdcw83a and nostr:npub15dqlghlewk84wz3pkqqvzl2w2w36f97g89ljds8x6c094nlu02vqjllm5m and nostr:npub1w69ya7xs697hk3hky3gllryz8rwverfa0ylz89chf9qnhfcskc2s64zltw and nostr:npub1guh5grefa7vkay4ps6udxg8lrqxg2kgr3qh9n4gduxut64nfxq0q9y6hjy on that topic.

Let us know, this is an important topic worth exploring in more detail. #bitcoin