Bitcoin is about to get a lot more volatile, according to Jeff Park, an expert at Bitwise Investments. He believes the recent approval of options for spot Bitcoin ETFs will cause prices to swing wildly in both directions.
What Makes These Options Different?
These new options are a big deal because they’re different from existing crypto derivatives. Here’s why:
- Regulation: They’re regulated by the US authorities, like the CFTC and SEC, which means they’re more secure and trustworthy for institutional investors.
- Counterparty Risk: They eliminate the risk of a trading partner failing to fulfill their obligations, a problem that’s been a concern in the offshore crypto market.
- Cross-Collateralization: This allows traders to use other assets, like gold ETFs, as collateral for Bitcoin trades. This opens up the market to a wider range of investors and increases liquidity.
The Volatility Factor
Park believes these new options will lead to a significant increase in Bitcoin’s price volatility. Here’s why:
- Dealers’ Hedging: Dealers who are “short gamma” will need to buy more Bitcoin as prices rise and sell more as prices fall, amplifying price movements.
- Derivatives Market Growth: The derivatives market for Bitcoin is currently small compared to the spot market. These new options could lead to a huge increase in the size of the derivatives market, which would attract more speculative trading and further boost volatility.
The Big Picture
Park believes Bitcoin is moving towards a more mature market structure, similar to traditional assets like equities and commodities. This means we can expect to see more volatility and liquidity in the future.
In short, get ready for a wild ride! Bitcoin is about to enter a new era of price swings, driven by the introduction of these new options. /p>
