Bitwise executive Jeff Park said that the IBIT options would be a game-changer and would remove the “jump-to-default (JTD) risk”, which has deterred institutional investors from participating.
Last week, the US Securities and Exchange Commission (SEC) gave the approval for trading physically settled option options on the BlackRock Bitcoin ETF (IBIT). Now, the IBIT options still await approval from the Commodity Futures Trading Commission (CFTC) and the Options Clearing Corporation (OCC).
However, market analysts are optimistic that the launch of the options will further boost institutional adoption in crypto. Bitwise Asset Management believes that the option market dynamics for ETFs could probably trigger a gamma squeeze for the BTC price.
As we know, options are financial derivatives that give the buyer the right to buy or sell an underlying asset at a set price by a specific date. A call option gives the holder the right to buy, reflecting a bullish market outlook, while a put option gives the right to sell, indicating a bearish view. Gamma represents the measure of how an option’s delta, its sensitivity to price changes in the underlying asset, shifts with every $1 move in the underlying asset price.
Jeff Park, head of alpha strategies and portfolio manager at Bitwise Asset Management, stated that the BlackRock Bitcoin ETF (IBIT) options provide a regulated leverage on the supply-constrained BTC. thus, he believes that this would draw solid institutional demand for calls, thereby leading to a possibility of the gamma squeeze. In a message on the X platform, he wrote:
“Bitcoin options have negative vanna: as spot goes up, so does volatility, meaning delta increases even faster. When dealers [market makers] who are short gamma hedge this (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.”
Why BlackRock Bitcoin ETF Options Will Be Game-Changer?
Park also stated that the IBIT options would be a game-changer and would remove the “jump-to-default (JTD) risk,” which has deterred institutional investors from participating. This will enable Bitcoin synthetic notional exposure to grow significantly. JTD refers to the sudden default of an issuer or counterparty before the market can react to the heightened risk.
Furthermore, Park also anticipates strong investor preference for longer-duration, out-of-the-money (higher strike) call options once they are launched. He noted:
“With bitcoin options, investors can now make duration-based portfolio allocation bets, especially for long-term horizons. There’s a good chance that owning long-dated OTM calls as premium spend will give investors more bang for their buck than a fully-collateralized position that could drop by 80% over the same period.”
However, some analysts expressed a contrary view. Greg Magadini, director of derivatives at Amberdata, said that the game squeeze would occur triggering a bullish storm if Donald Trump returns to the White House this year.
But he added that over the long term, institutional participation in ETF and ETF options is likely to dampen volatility. “Institutional flows, in particular, are counter-cyclical. Portfolio managers tend to trim exposure through quarterly rebalancing, selling appreciating assets when bitcoin rallies too much,” Magadini said.
next