Key Points:
- Jeff Park from Bitwise Alpha predicts that Bitcoin ETF options approval could lead to unprecedented volatility in Bitcoin prices.
- While this approval allows for hedging and volatility management, further approvals from the OCC and CFTC are required before the options can be officially listed.
Jeff Park, a strategist with Bitwise Alpha, expects the recent approval by the SEC in favour of BlackRock’s Bitcoin ETF options trading might be a catalyst for a significant surge in Bitcoin’s volatility.
Read more: Nasdaq Now Withdraws Bitcoin ETF Options Proposals Amid Skepticism Over SEC Approval
SEC Clears Bitcoin ETF Options Trading
Jeff Park nailed this development as probably the largest event in the history of the cryptocurrency market. Through Bitcoin ETF options, the notional value of Bitcoin will, for the first time be “fractionally banked” as a new avenue to tap regulated market dynamics. This is all so important in light of the limited non-custodial supply of Bitcoin today driver that has historically constrained synthetic leverage creation.
According to Park, SEC approval will ensure the CFTC offers protection to clearing members, with Bitcoin’s synthetic notional exposure growing exponentially.
The Bitwise Alpha exec also elaborated on some of the unique volatility characteristics of Bitcoin that when the spot price goes up, volatility goes up. That creates a so-called “gamma squeeze” among traders, who are forced to cover short positions, driving prices even higher.” In contrast, he states that upon a negative “vanna gamma squeeze,” prices could go even higher, feeding into a cycle of explosive price action.
Future Approvals Needed for Full Market Implementation
By approving options on BlackRock’s iShares Bitcoin Trust, the SEC is paving the way for investors to start hedging their positions in Bitcoin and dampening volatility with the new instruments. The agency said Bitcoin ETF options would be treated similarly to regular ETFs, meaning they would be subject to position limits and margin requirements.
Eric Balchunas, Bloomberg Senior ETF Analyst, says more approvals for other Bitcoin ETFs could be in the offing, possibly bringing in liquidity and larger institutional buyers. Yet, he qualified such statements by saying that there are still big regulatory hurdles that need to be jumped before options can be listed, namely final approval from the OCC and the CFTC, which hasn’t yet been given, nor a timeline provided.
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Source: Coincu
