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One of the exciting developments from last Friday was the U.S. Securities and Exchange Commission’s (SEC) greenlight for listing and trading of physically settled options tied to BlackRock’s spot Bitcoin (BTC) ETF, the iShares Bitcoin Trust (IBIT).
Bitwise’s head of alpha strategies has suggested that these products could set the stage for enormous upside volatility in the BTC price.
“The Most Monumental Advancement Possible” For Crypto
On Sept. 20, the Securities and Exchange Commission gave its regulatory blessing to the Nasdaq exchange to list options on BlackRock’s iShares Bitcoin Trust ETF (IBIT) — marking the first time the top Wall Street financial cop has greenlighted options tied to spot Bitcoin funds for U.S. customers.
Listing spot BTC options on regulated US exchanges, where the Options Clearing Corporation (OCC) protects traders against counterparty risk, represents “the most monumental advancement possible” for cryptocurrency markets, Jeff Park, Bitwise Asset Management’s head of alpha strategies, observed in a Friday tweet.
“For the first time, Bitcoin will have a regulated market where the OCC protects clearing members from counterparty risks,” Park explained. “This means Bitcoin’s synthetic notional exposure can grow exponentially without the [default] risks that have kept investors at bay.”
Notably, Park argued that Bitcoin’s unique attributes combined with options could deliver massive potential for upside volatility.
The first is Bitcoin’s “volatility smile,” depicting the willingness of derivatives traders to pay high premiums for both exposure to and protection from heavy upside or downside price volatility. This gives Bitcoin options “negative Vanna,” meaning the asset’s volatility soars alongside its spot price, making Bitcoin’s upside “explosively recursive.”
“A negative Vanna gamma squeeze acts like a refueling rocket,” the expert added.
The other Bitcoin characteristic is its capped supply. As fresh leverage flows into the market, new coins cannot be printed to accommodate it — an anomaly that has typically limited the peak of explosive meme stocks such as Gamestop (GME).
While there are markets for other commodities like oil and natural gas, the Bitwise executive said they trade more closely with the futures market because they have expiration dates. They’re also vulnerable to supply manipulation by the Organization of the Petroleum Exporting Countries (OPEC) and other bodies.
“Bitcoin ETF options are the first time the financial world will see regulated leverage on a perpetual commodity that is truly supply constrained,” he summarized. “Things will likely get wild. In such scenarios, regulated markets may shut down.”
Remarkably, Bitcoin is completely decentralized and can’t be shut down, which he believes “will add even more fuel to the fire.”
“It’s going to be unbelievably fantastic.”
Meanwhile, other top analysts expect the SEC to approve options trading on other spot Bitcoin ETFs “in short order.”
Nermeen Nabil Khear