Bitwise executive Jeff Park believes that the recent approval of options on BlackRock’s Bitcoin exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission (SEC) will lead to a wild ride in the crypto market. The SEC granted accelerated approval for the listing and trading of options on BlackRock’s ETF, known as the iShares Bitcoin Trust (IBIT). Park, who heads alpha strategies at Bitwise, considers this approval to be a monumental advancement for the crypto market. He explains that options will allow for synthetic flows with leverage for Bitcoin.

Park highlights the unique volatility characteristics of Bitcoin, including what he calls a “volatility smile.” He explains that Bitcoin experiences frequent price surges and drops, which leads to a demand for a risk premium on both sides of the market. This can be seen in the second-order Greek called vanna. Normally, as the price of the underlying asset rises, implied volatility tends to fall. However, Bitcoin options have negative vanna, meaning that as the price of Bitcoin increases, so does volatility, leading to an even faster increase in delta (the rate of change of the option’s price). This can result in a gamma squeeze, where dealers who are short gamma are forced to keep buying at higher prices, creating a recursive upward movement in Bitcoin’s price.

Park also emphasizes that Bitcoin cannot be diluted like meme stocks, where management can issue new shares. He believes that the introduction of Bitcoin ETF options will provide regulated leverage on a supply-constrained commodity, which has never been seen before in the financial world. He predicts that this could lead to wild market scenarios and potential shutdowns of regulated markets. However, he notes that Bitcoin has a parallel decentralized market that cannot be shut down, unlike other assets.

According to Park, options will also benefit Bitcoin miners. He explains that miners help establish a price floor for Bitcoin, while ETF options will allow for speculation on the price ceiling. As the price continues to rise, traders will continually miss the ceiling, resulting in increased miner profitability and enhanced security.

In conclusion, Park believes that the approval of Bitcoin ETF options will bring significant excitement and potential volatility to the market. He predicts that regulated markets may experience shutdowns, but Bitcoin’s decentralized nature will ensure that trading continues. He expects this development to be incredibly positive and exciting for the cryptocurrency industry.