Translation | Wu Blockchain about blockchain
Original link:
https://x.com/dgt10011/status/1837278352823972147
On September 21, the U.S. SEC approved BlackRock's spot Bitcoin ETF's options trading proposal, which was the first time that a spot Bitcoin ETF was approved for options trading. Jeff Park, head of strategy at Bitwise Alpha, wrote this article, saying that "we are about to witness the most extraordinary rise in volatility in financial history." The following is the Chinese translation of the full article:
With the SEC’s approval today for the listing and trading of Bitcoin ETF options, I shared a view that we are about to witness the most extraordinary volatility surge in financial history. I feel this deserves a more detailed explanation, so I want to highlight some of the characteristics of Bitcoin, the nature of regulated options markets, and the powerful effect of the combination of the two. It is no exaggeration to say that this marks the most important development in the crypto market.
This is the first time that Bitcoin notional value has been “partially banked” through ETF options. What does this mean? While Bitcoin’s non-custodial, capped supply is its greatest strength, it has also become a drag, limiting its ability to create synthetic leverage. Despite Deribit’s efforts, it has never been able to fully address the counterparty and capital efficiency matrix for widespread adoption, while CME futures options require too much active management. Now, for the first time, Bitcoin has a regulated market, with the OCC protecting clearing members from counterparty risk. This means that synthetic notional exposure to Bitcoin can grow exponentially without the Just-in-Time Delivery (JTD) risk that scares investors. In a liquidity-driven world, unlocking synthetic money flows with leverage represents the biggest opportunity for Bitcoin ETFs, greatly enhancing its financial utility compared to the spot market.
Additionally, Bitcoin can now include duration as part of the leverage calculation for the first time. Retail traders have embraced perpetual contracts for leverage, but these instruments are not perfect and are more like a series of daily near-month options that must be constantly rolled. With Bitcoin options, investors can now combine investments based on duration, especially for long-term investments. There is a high probability that buying a long OTM call option as a premium expenditure is more valuable than the risk of a fully collateralized position that could drop 80% over the same period. People often compare Bitcoin to call options because of its premium decay and occasional explosive rises. Now, you can bet on volatility increases for the same or less premium while capturing more delta on a longer time frame, which is undoubtedly an attractive opportunity.
Bitcoin also has unique volatility characteristics, the most important of which is the “volatility smile”. Most stocks or indices exhibit a “volatility skew”, where upside volatility is cheaper than downside volatility (i.e. protection is more expensive than speculation). Bitcoin is unique in that its price rises and falls equally often, so the market demands a risk premium on both sides. The practical meaning of this is reflected in the second-order Greek letter vanna. Historically, for all options, as the spot rises, implied volatility tends to fall. So while the delta of an option increases (becomes more in-the-money), the rate at which it grows slows — this is positive vanna (dA/dvol), which creates a drag effect. However, Bitcoin options have negative vanna: as the spot price rises, so does volatility, which means delta grows faster. When traders who are short gamma hedge this situation (gamma squeeze), the situation in Bitcoin becomes explosively recursive. More upside leads to more upside as traders are forced to keep buying at higher prices. A negative vanna gamma squeeze is like a refueling rocket.
The most critical factor that ties this all together is this: Bitcoin itself cannot be diluted to accommodate this newfound leverage. In contrast, with a stock like GME or AMC, management can issue new shares to take advantage of pricing anomalies, thereby limiting the stock's upside. Bitcoin can never do this. You might ask, "Jeff, what about commodities like oil or gas? Aren't they similar? If so, why is Bitcoin different?" The key difference is that most physical commodities have expiration dates, which means they tend to be traded with futures markets rather than spot markets. Futures markets are different from spot markets in that they vary total and notional exposure based on expiration dates and net interest in physical vs. paper, so they do not allow for concentrated participation in a single direction (i.e., people taking long and short trades on the curve, physical vs. paper hedging). In addition, these markets are subject to supply manipulation by organizations like OPEC.
In summary, the Bitcoin ETF options market is the first time the financial world has seen an opportunity to achieve regulated leverage on a truly supply-constrained perpetual commodity. In this scenario, things could get really wild and regulated markets may not be able to absorb them easily.
But what’s remarkable about Bitcoin is that there will always be a parallel decentralized market that cannot be shut down, unlike the CME — which conceivably would add more fuel to the fire.
It will be an incredible spectacle.
