Bitcoin (BTC) and ether (ETH), the top two cryptocurrencies by market value, have been unusually calm for over two weeks. The range play probably stems from the market running into competing narratives and influences.
There is another powerful force at work, a so-termed invisible hand of crypto options market makers, partly responsible for keeping prices rangebound, according to observers.
Market makers are entities with a contractual obligation to maintain a healthy level of liquidity on an exchange. They ensure there is enough depth in the order book by offering to buy or sell a call/put option contract at any given time.
For instance, if a trader wants to buy a BTC call option at the $40,000 strike price and there is no matching sell order, the market maker would do the needful by providing the sell order. Options are derivative contracts that give the purchaser the right to buy or sell the underlying asset at a predetermined price on or before a specific date. A call option gives the right to buy, while a put option offers the right to sell.
Market makers, therefore, are always on the opposite side of investors and maintain a delta-neutral (direction-neutral) book by actively buying and selling the underlying asset in the spot or futures market as the price swings.