Bitwise executive Jeff Park thinks “things will likely get wild” now that the U.S. Securities and Exchange Commission (SEC) has approved options on BlackRock’s Bitcoin (BTC) exchange-traded fund (ETF).
Last week, the SEC greenlit accelerated approval for the listing and trading of options on the iShares Bitcoin Trust (IBIT), BlackRock’s ETF.
Park, Bitwise’s head of alpha strategies, says the approval “marks the most monumental advancement possible for the crypto market.” The executive notes that options will unlock synthetic flows with leverage for BTC.
He also says Bitcoin has unique volatility characteristics, including a “volatility smile.”
“Bitcoin is unique because melt-ups are as frequent as melt-downs, so the market demands a risk premium on both sides. The practical implication? It’s seen in the second order Greek called vanna. Historically, with call options, as spot rises, implied volatility tends to fall. So while the option delta increases (becoming more in the money), the rate of increase slows – this is positive vanna, which creates a sort of drag.
However, Bitcoin options have negative vanna: as spot goes up, so does volatility, meaning delta increases even faster. When dealers who are short gamma hedge this (a gamma squeeze), Bitcoin’s case becomes explosively recursive. More upside leads to even more upside, as dealers are forced to keep buying at higher prices. A negative vanna gamma squeeze acts like a refueling rocket.”
Park notes that BTC can’t be diluted, unlike meme stocks for companies where management can issue new shares.
“In summary, the Bitcoin ETF options market is the first time the financial world will see regulated leverage on a perpetual commodity that is truly supply constrained. Things will likely get wild. In such scenarios, regulated markets may shut down.
But the remarkable thing about Bitcoin is there will always be a parallel, decentralized market that can’t be shut down, unlike GME – which, as you can imagine, will add even more fuel to the fire.
It’s going to be unbelievably fantastic.”
Park also says options are going to be great for Bitcoin miners.
“Miners help us find the FLOOR. ETF options will help us imagine the idea of grasping the CEILING, and miss it each time as it goes higher – which in turn help miner profitability and enhance security.”
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