Bitcoin ETF Options Won’t Reduce Volatility, Bitwise Says

Jeff Park, head of alpha strategies at Bitwise Asset Management, is convinced that there is zero chance that Bitcoin ETF options will end up reducing the volatility of the underlying cryptocurrency. 

As explained by Park, money is supposed to create a tradeoff between price and quantity. Central banks manipulate the money supply in order to ensure price stability. On the other hand, Bitcoin’s total supply is hard-capped at 21 million coins. However, its holders should relinquish the price guarantee, which means that they will have to deal with high levels of volatility. 

A massive development 

On Friday, the SEC greenlit the trading of options for BlackRock’s record-shattering iShares Bitcoin Trust (IBIT). The product makes it possible to amplify exposure to the leading cryptocurrency. 

On Saturday, Park explained the impact of the approval of Bitcoin ETF options, describing them as “the most monumental advancement for the crypto market.” This is due to the fact that this product marks the first time that the financial world has regulated leverage on a perpetual supply-constrained commodity.  

As noted by Park, Bitcoin’s synthetic notional exposure will now be able to grow exponentially. This will enhance the financial utility of ETFs. 

Moreover, options traders will be able to capture more delta while paying the same premium. Thus, they will be able to have “more bang for their buck.”

Bitcoin’s implied volatility tends to increase in tandem with its spot price, meaning that it has a negative Vanna. A gamma squeeze tends to lead to an explosive price rally. 

No fake supply 

Willy Woo, a prominent on-chain analyst, has argued that the supply ceased to be constrained due to synthetic exposure. He argued that the introduction of derivatives had made it possible for dollar holders to sell Bitcoin. 

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However, Park did not support this argument. “Options don’t create fake supply, it just helps accelerate the steady-state destination of Bitcoins neutral price faster, which is higher,” he explained in a social media post.