Bitwise Exec: Bitcoin ETF Options Will Be Wild – Here’s Why

Bitwise executive Jeff Park predicts “things will likely get wild” following the SEC’s approval of options on BlackRock’s Bitcoin ETF. This bold move by the U.S. Securities and Exchange Commission (SEC) signals significant growth and innovation within the cryptocurrency sector.

Last week, the SEC approved accelerated listings and trading options for BlackRock’s iShares Bitcoin Trust (IBIT), setting the stage for a new era in Bitcoin exchange-traded funds (ETFs).

Why the SEC’s Bitcoin ETF Options Approval Matters

Jeff Park, head of alpha strategies at Bitwise, remarks that this approval is a groundbreaking leap for the cryptocurrency market. He emphasizes that options on the Bitcoin ETF will enable synthetic flows with leverage, highlighting Bitcoin’s distinctive volatility traits, particularly its “volatility smile.”

“Bitcoin’s tendency for both rapid ascents and declines creates a dual-sided risk premium. This is evident in the concept of vanna, particularly with call options. When Bitcoin’s spot price rises, implied volatility typically declines, leading to positive vanna—a kind of drag. However, Bitcoin options show negative vanna: as the spot price increases, volatility rises, causing delta to increase faster. This results in a gamma squeeze, igniting further price hikes as dealers buy at escalating prices. The negative vanna gamma squeeze propels Bitcoin’s value like a rocket booster,” Park explains.

The Unique Characteristics of Bitcoin Options

One of Bitcoin’s unique features is its supply constraint. Unlike meme stocks, Bitcoin cannot be diluted by issuing new shares. Park notes this characteristic creates a unique dynamic in the Bitcoin ETF options market, as a regulated leverage system is applied to a perpetually limited commodity.

“This regulated leverage on a supply-constrained asset might lead to extremely volatile situations. Ordinarily, regulated markets may be shut down to control such volatility. However, Bitcoin’s decentralized nature ensures continuous trading, unlike traditional stocks like GME. This continuous trading further intensifies market dynamics,” adds Park.

“The Bitcoin ETF options will have profound implications for Bitcoin miners as well. While miners help establish the floor price by maintaining Bitcoin’s network security, ETF options push the ceiling higher, enhancing miner profitability,” Park continues.

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Disclaimer: The views expressed in this article are not investment advice. Always perform due diligence before making any high-risk investments. Your transactions are at your own risk, and any resulting losses are your responsibility. The Daily Hodl does not recommend specific buying or selling decisions concerning cryptocurrencies or other investments.

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