Bitcoin ETFs Will Boost Volatility of Prices, Says Expert

According to Jeff Park of Bitwise Investments’ Alpha Strategies, the Bitcoin volatility will likely surge both up and down following recent approvals of spot Bitcoin ETFs. According to Jeff Park, head of Alpha Strategies at Bitwise Investments interview Park explained to Anthony Pompliano how these new crypto derivatives differed from the existing ones and why it could be a major influence on Bitcoin market dynamics.

The Bitcoin ETF options are a game changer

Park presented a thorough thesis during the interview. “Volatility is not just a static measure of past performance; it reflects the distribution of potential outcomes and the severity of those outcomes.” He stressed that the introduction of Bitcoin ETF options The new features will change the way traders engage with Bitcoin. They could increase or decrease its price. The volatility, according to him, is due in part to the peculiarities of options, as financial instruments.

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While Bitcoin options are not entirely new—offshore platforms like Deribit and LedgerX already offer similar instruments—ETF options introduce a regulated market overseen by US authorities like the CFTC and SEC. According to Park, this makes a huge difference because “removal of counterparty risk is something that crypto has not fully solved offshore.” He said that clearing mechanisms offered by the Options Clearing Corporation bring additional security to trades. Institutional investors have been demanding this for years.

More importantly, Park highlighted the advantage of cross-collateralization, which is not available on existing platforms that cater exclusively to crypto. “Cross-collateralization allows traders to use non-correlated assets, such as gold ETFs, as collateral in Bitcoin trades,” He explained. He explained. “You can’t do this on Deribit or any purely crypto-focused platform,” Park called it an a “huge unlock” Bitcoin Derivatives Market

Park predicts that Bitcoin will be magnified by the addition of these new options. price swings. “For any well-functioning and liquid market, you need organic buyers and sellers to create natural demand and supply,” He said. But the impact of dealers’ hedged positions is what matters most, especially in situations where they have to be backed up. “short gamma,” A condition in which their hedge activities could intensify the price movement.

Park stated that the practical application of this statement is: “Dealers who are short gamma must buy more Bitcoin as prices rise and sell more as prices fall, thereby adding to the volatility.” Understanding how ETF options can push Bitcoin’s price in either direction is critical. He noted that most Bitcoin options are driven by speculators, not risk management techniques like covered call, which can reduce volatility.

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Park highlighted the explosive growth of Bitcoin. derivatives market. The derivatives market in traditional markets, such as equities is usually 10 times bigger than the spot market. Park’s data shows that Bitcoin’s current open interest in its derivatives represents only 3% the value of Bitcoin’s spot market. “The introduction of ETF options could lead to a 300x increase in Bitcoin’s derivatives market size,” Park predicted.

Due to the increased volume of options and speculative trading, this growth will likely increase volatility. “That’s an astronomical number for which there’s going to be new flows and liquidity coming into this market which will likely therefore add volatility,” Park said.

“In the global economy, derivatives markets are far larger than the spot markets,” He added that derivatives are crucial in the risk management of traditional asset classes such as equities, commodities and bonds. “Bitcoin is moving toward a similar structure, and that’s where we’ll see the most significant price movements and liquidity,” Park completed

BTC was trading at $62,334.

The featured image is from YouTube. Charts are from TradingView.com