Negative space is shaking up the Bitcoin market - expanding gamma exposure amid tariff tensions

In the cryptocurrency market, the hidden risks known as “Negative Space” are gradually surfacing. As Bitcoin and major altcoins fluctuate amid geopolitical tensions and trade uncertainties, unseen internal market mechanisms are further fueling volatility. As of early February, BTC is trading around $78.43K, down 5.72% over 24 hours, continuing a bearish trend, and behind this decline are not only external news but also structural issues within the market.

The Hidden Influence of Market Makers: Gamma Exposure and Volatility Amplification

On the surface, factors like the Trump administration’s tariff threats and trade conflicts with Europe seem to be the main downward drivers. However, digging deeper reveals how the “Negative Space” created by market makers in the Bitcoin options market significantly amplifies actual volatility.

Market makers are key participants who generate buy/sell orders on exchanges to ensure large trades are executed at stable prices. Since they profit from the bid-ask spread, they need to maintain a neutral exposure to price movements. This process is called gamma hedging, which is the core mechanism behind volatility expansion.

Having “negative” gamma exposure means that market makers’ risk increases with price fluctuations. According to Amberdata’s Deribit data, current negative gamma exposure among market makers is concentrated mainly in the $86,000 to $95,000 range. In this scenario, if prices rise, market makers must sell more; if prices fall, they must buy more. Consequently, their hedging activities tend to amplify market trends.

A similar phenomenon occurred in the October last year in the S&P 500 options market, where increasing negative gamma exposure among market makers led to a sharp spike in volatility. The current Bitcoin market exposes the same structural vulnerabilities.

Geopolitical Tensions and Trade Crises Triggering a Sharp Drop

It’s not just technical issues. External factors are also strongly pushing the market into a bearish phase. The Trump administration has expressed intentions to acquire regions including Greenland, threatening tariffs on Denmark and European countries. The threat of 200% tariffs on French wine and champagne could escalate beyond trade disputes into global economic instability.

Emir Ibrahim, an analyst at digital asset trading firm ZeroCap, pointed out, “Much of the current market tension stems from political noise.” The series of policy decisions expected include considerations of military intervention in Venezuela, tariff threats against Iran and Europe, and efforts to replace Fed Chair Powell. The Supreme Court’s rulings on tariffs could also cause short-term volatility to spike.

Traditional markets are reflecting this instability as well. The US 10-year Treasury yield hit 4.289%, the highest in four months, and along with a weakening dollar, stock futures are also trending downward. E-mini S&P 500 futures fell by 1.60%, and E-mini Nasdaq-100 futures declined by 1.94%.

Technical Analysis: The Dangerous Zone of $86,000~$95,000

Deribit options data vividly illustrates the current risky configuration. The concentration of negative gamma exposure between $86,000 and $95,000 indicates a high likelihood of increased volatility in this price range.

However, at around $90,000, positive gamma exposure is forming, which could help market makers suppress volatility if prices reach this level. Considering BTC is currently trading at $78.43K, the $86,000~$95,000 zone is likely to be a short-term hot spot.

Market sentiment among options traders is also deteriorating. They estimate about a 30% chance that Bitcoin will fall below $80,000 by the end of June, with strong demand for put options in the $75,000~$80,000 range. This signals that market participants are preparing for significant downside scenarios.

Capital Flow Reversal: Signs of Increasing Outflows from Spot ETFs

Capital flows also reflect deepening market weakness. Daily net outflows from spot BTC ETFs reached $394.7 million, with total net outflows amounting to $5.78 billion. The total holdings in spot BTC ETFs are about 1.31 million coins, indicating substantial recent capital withdrawal.

Meanwhile, spot ETH ETFs saw a daily net inflow of $4.7 million, showing a slight recovery. Total net inflows amount to $12.93 billion, with about 6.23 million ETH held. This suggests that funds are not fully shifting from Bitcoin to Ethereum, reflecting overall risk-averse sentiment.

Bitcoin dominance stands at 59.79%, up 0.19%, indicating that altcoins have fallen more sharply. The BTC/ETH ratio is at 0.03401, down 1.16%, showing ongoing asset reallocation within the market.

Mixed Performance of Cryptocurrency-Related Stocks

Stocks related to cryptocurrencies show mixed movements. Coinbase (COIN) closed at $241.15 (+0.78%) but fell 4.75% in pre-market to $229.70. Galaxy Digital (GLXY) closed at $34.31 (+7.25%) but is now at $31.51 (-8.16%).

Mining companies are mostly down. Riot Platforms (RIOT) closed at +16.11% during the day but is now down 6.13% at $18.06. CleanSpark (CLSK) moved from $13.37 (+5.03%) to $12.42 (-7.11%).

MicroStrategy (MSTR) closed at $173.71 (+1.64%) but dropped 5.69% from $163.82, indicating strong selling pressure. This highlights how MicroStrategy’s large Bitcoin holdings pose significant risk in the current downturn.

Market Waiting for Turning Points

February’s crypto market is approaching several key events. Announcements from major blockchain projects like BNB Chain, Avalanche, and token issuance events such as EtherFi, MegaETH, and Zama are scheduled.

More critically, the Supreme Court’s ruling on Trump’s tariff policies could cause short-term volatility to spike. Additionally, the US ADP weekly employment data release on January 20 is a key event.

The current “Negative Space” situation may be temporary or structural. The crucial point is that market participants need to recognize not only simple price movements but also structural vulnerabilities like gamma exposure and manage their positions accordingly. Progress in tariff negotiations and shifts in Fed policy stance are likely to determine future directions.