Bitcoin Derivatives Dampen Volatility Temporarily
Itβs a very clean way of looking at the dampening effect of the derivatives market. You are effectively describing volatility selling. When large holders (OGs) look to harvest yield from their stacks, they sell options.
If they are writing covered calls, that is quite literally placing a limit sell (an Ask) at a higher price and getting paid for it. If they are writing puts, they are placing a limit buy (a Bid) at a lower price and getting paid for it.
The consequence, as you noted, is that price gets pinned. The market becomes thick with these "soft" orders, and volatility is crushed because the holders are incentivised to keep the price within a range to collect that premium. It creates a temporary equilibrium where the price feels artificial or flat.
But you are right that this is ephemeral. Derivatives are paper promises that eventually require settlement. The mechanism works perfectly well while coins are circulating, but the supply cap is the hard reality waiting at the bottom of the stack. Once the liquid supply exhausts and the coins move to those self-selected holders who demand on-chain settlement rather than fiat yield, the option market's ability to suppress price evaporates. You can't print more bitcoin to cover a short squeeze.
https://gemini.google.com/share/e7f0f1f85ac6