Everything You Need To Know About The New Bitcoin ETF Options | Jeff Park

There's going to be somebody who's going to trade the ibit options but they're going to trade the underlying Bitcoin spot 247 if you can do that you are the person that's outside the perfect Arbitrage pricing model that can do different things so this is why I continue to believe that Crypton native uh derivatives Traders are going to make more money than those who have to be in one system or the other because you are Able to live in Both Worlds but if you can lean on that and trade Bitcoin throughout the weekends through Saturday and

Sunday and overnight then you got yourself some free gamma hey everyone this episode is sponsored by polka dot polka dot is the largest community Dow empowering 1.3 million dot holders to shape the future of the network through active participation with over 500 applications backed by over $6 billion in shared security polka dots adaptable Technology Powers a diverse ecosystem from defi to AI join the polka dot Dow and be part of that transformation this episode is sponsored by Ledger this Black Friday Ledger is offering an incredible deal to secure your digital assets from November 29th to

December 5th upgrade to Ledger flex and get $70 in Bitcoin plus save up to 40% on select Ledger Nano wallets and accessories these deals are only available while supplies last so don't wait visit Ledger's website at ledger.com today to take advantage of the best offers of the year and protect your assets with the global leader in digital asset security this episode is sponsored by Mantra the Mantra train is the purpose build bu layer 1 blockchain designed for tokenized real world assets and regulated digital assets offering scalable high performance architecture position ases the blockchain for tokenized

rwas mantra is onboarding Traditional financial institutions into web3 join the ongoing om genen drop campaign would be part of the future of regulated digital assets today welcome back to another episode and joining me today is Jeff Park head of alpha strategies at bitwise investment and renowned on Crypt Twitter Financial Twitter at the guy to talk to in terms of anything related to bitcoin and micro strategy options so I'm super excited to have you On today we're recording this about we're into the second day of options that are trading are now live we obviously had the

Black Rock ETF go live yesterday we had the rest of the ETFs go live today so you know no one I'd rather talk to to just break down what we've been seeing and how it's all coming together so yeah just so to have you on the show Jeff thanks for having me Felix huge fan of on the margin uh dare I say one of my favorites of the blockworks Family so super excited and privileged to be here thanks for having me awesome so you know a couple months ago you came across my feet because you

had a pretty interesting thesis around this was around the time where we started to see some some Headway and some traction getting going in terms of actually getting these these options live on the Bitcoin ETFs and you had this really interesting thesis that we'll we'll get into but I just want to open up the Stage for you to basically flesh out like what were some of your key expectations going into this and then also just hearing a bit more about how those have actually come to pan out um and just digging into some of the

specific expectations that you've seen versus reality so the tldr on what I shared now I think about two months ago upon the news of the SEC providing approval for the Bitcoin ETF options to be listed was that we're going to be on The verge of witnessing one of the most extraordinary upside Vol ofall events in financial history so the key thing here is that volatility is a multi-dimensional measure and some people think about volatility in a fairly rudimentary way maybe in infin an academic way they'll say it's the rolling average of standard deviations over some

period of time but as you know in practitioners know that's not the only way to measure volatility right Let's say something doesn't move for a long time and then one day it just moves five standard deviation right the Vol of I would not characterize that as a low Val asset right and Bitcoin is a very unique asset where it actually has pretty high rolling volatility on average and it also has a high amount of olive all which means that the taals can be quite fat in its return history both to the left and equally importantly

to the right uh so the thing that um I Wanted to bring to light is most folks who have been trading options will know that there is a phenomenon called a volatility skew which is that downside protection tends to be a little bit more expensive than the symmetric contract to participate towards the upside meaning humans generally want protection and insurance costs a premium and they're willing to pay a little bit above what the implied volatility at fair value should be that also makes sense because Most Financial assets actually uh crash down rather than have events

where they go up astronomically unless there's a specific Catalyst like a like a merger or or drug Discovery or something like that Bitcoin is unique because it actually has what is called a volatility smile and it means that the all options can be just as expensive as the put options and that really means melt UPS can be just as likely as meltdowns and there's a lot of phenomenons that can Happen around this kind of volatility distribution and historically no Financial instrument really allowed regulated market participants to express views on this particular path dependency so many

times people would have said hey Jeff you know Bitcoin have actually been around for a long time you you've had things like derit and Ledger and ways to trade it uh and and the reality is those things are interesting but it's not where most regulated practitioners Actually would choose to express their risk it also doesn't open the door for a lot of retail traders that are interested in accessing this particular Financial instrument that makes it challenging to go offshore and so there's a variety of reasons uh that that I think this was a Monumental event

but the key Point here being that it will give investors a chance to express path dependency in a way that historically has not been possible Before and there's a specific and a thesis I've had around what that will mean for Bitcoin uh in the future I want to just characterize a little bit more the uniqueness of this uh this skew this smile that you're talking about so yeah as you mentioned you know generally speaking like people are long assets and and so you know the average person will likely not try to add- on further leverage

with cuse or something like that but they will try to you know have Some sort of uh you know hedging of of like a left tail risk so they'll buy some puts so that leads to you know if you just look at like I like an index of like QQQ or something or s Spy puts are more expensive than calls generally speaking but you're what you're saying here is that um just due to how volatile generally speaking Bitcoin is um to the upside and to the downside is that calls are equally priced at at this

this additional premium and I just want to Hear a bit more about like how unique is that obviously you know like you mentioned darab bit which has been like an existing onchain um not onchain but options platform that's existed for quite a few years there has also been like onchain options platforms that have existed as well but they just again like you said there there hasn't been the regulatory Clarity for you know big money to come in and participate there as much so I just want to hear like Obviously we've seen that volatility smile exists

on those platforms already we've seen it exist in micro strategy already but has there been examples of this outside of crypto where we've seen this sort of distribution or is this like a idiosyncratic thing to just crypto sure great question there is probably not a lot of assets that demonstrate this particular feature but there are some there are some and actually that world most likely lives in Commodities and so this goes back to the original question of is Bitcoin a security or a commodity and at some level one of the reasons I think people fundamentally

obviously think it's a commodity is because of the particular way the market structure even exists and so if you think about oil as a commodity you will sometimes see volatility Smiles at moments of distress and Supply shocks that create very um disparate hedging Behavior amongst the producers as well As speculators uh so so I think that is a good example of uh the necessity of generally being like a hard asset where the valuation framework isn't so much driven by like fundamental analysis based on value investing or cash flow-based principles it really manifests itself with assets

that are most prone to the technical structure of Market positioning so the marginal buying and selling pressure is actually the first order determinant of a price Setting rather than having a valuation based investor coming into making uh making a play um so the reason nonetheless though Bitcoin is really different than even something like oil or natural gas is because uh it is at its purest form code right so actually it doesn't even take up space and what you find oftentimes with oil Futures and oil spot assets too is that it exhibits some kind of basis

on the auxiliary costs associated with Servicing as a physical asset so you'll see when you price the forward curve on these Commodities things like storage costs and transports play a big role in that Arbitrage of where these things should be and there are Financial investors who try to capitalize upon these inefficiencies too but crypto is really really pure Bitcoin doesn't really have those kinds of noise if you will those kind of bases and so in a way that makes it even more obvious as to How to how to price that skew there's only one reason

the skew exists and it's because of the singular price movement of the asset and no other kind of components that some investors might want to think about with harder Commodities the other thing is when you trade oil Futures those things are um termed right so you have to think about one month three month six month type of futurist contracts which actually lives in its own forward curve what that I Think also signifies is that most Commodities are not Perpetual in nature that they do in fact expire you know that for sure with agriculture they expire

uh again Bitcoin is super unique because it is actually perhaps the first time we've had a Perpetual commodity access to financial Market in a way where it is definitionally Perpetual in nature and that I think brings a lot of Purity in my opinion in the way that a ball arbitrager can look at the Specificity of the surface in ways that is not always possible even with other Commodities obviously we'll get into the potential impact of of this but I just want to further understand like you know when I look at when when we talk about

Bitcoin we talk about Supply versus like traditional Commodities you know if if a traditional commodity like you know oil or I know copper even gold when when price Rises significantly what you get is that you know miners that weren't Profitable at a previous price are now profitable at that price so then you have an increase in Supply and that that mean reverts price in a way but what's unique about Bitcoin is that due to like the difficulty adjustment Etc is that when when when price increases You Don't See that same increase in Supply the supply

is is constant and the the difficulty addressing basically keeps that constant so what I'm trying to understand here is that okay typically In a in a commodity you know if we just get a huge up move and we see that volatility smile occur it'll likely mean revert because of that Dynamic where Supply will come on right but as opposed to here in this situation my understanding is that because of what I just talked about with Bitcoin is that it remains constant the supply demand Dynamics remain pretty constant is that right yeah that's exactly right there

is almost a programmatic way to thinking About the supply creation where it's finite and known to the entire Supply exercise um which also is another thing that brings ultimate Purity to how people will look at this as a asset that moves based on marginal selling and buying pressure where uh there's less exogenous risks that can be introduced this is important this is actually I think one of the core principles of why Bitcoin in my opinion is what I call a flow asset rather than a state asset Meaning State asset type a price in which it

has to be consumed for some kind of utility that it brings to economic productivity and it fits into a broader uh productivity calculus like oil has a price in which it needs to contribute to the GDP growth in the way that our systems work but Bitcoin is a little bit more like currency in some sense of it being a flow asset where it isn't really a price that uh stands Beyond a moment in time where people Just want to transact and find some exchange of value so if you believe that there isn't really a natural

floor or a ceiling towards where Bitcoin should be anchored by some uh some way to think about the the productivity that it brings to people um I think that's a unique point that sometimes Gets Lost in Translation because when you see short squeezes and oil and other things it it tends to revert because there is kind of a need for it to find a stabilizing Price to to reality and you'll have producers AC upon it you'll have government interventions upon it but crypto today Bitcoin isn't necessarily plugged in like this and so if it gets

a short squeeze and it actually goes up a lot higher than where we are today what I mean to say is yes some people have lost money along that way and some people will have made money along that way but it actually is a net neutral event to the system amongst the Constituents where there's no then additional pressure to have it come down beyond the fact that yes sometimes people will say it's overv and they'll sell and go to cash or whatever and those things matter but but those are more what I would call like

trading patterns uh and cost basis calculations of of where the moving averages of that of that weighted cost basis might be across cycle the other thing worth mentioning is you see this incredible Phenomenon where corporates today are rewarded at some level by having Bitcoin in the balance sheet right you mentioned micro strategy as one particular exaggerated example of that singular thesis and pursuit but there are other companies that have uh went around this with some great halo effect so I mentioned Tesla is one too Tesla is one where I wouldn't say it's a Bitcoin play

but it does have some Bitcoin and in some ways I do think that was the moment That the broader Investment Management Community decided they're not going to short Tesla anymore and part of it is because you have one more this unknown exogenous risk that actually it might melt up in a way that has nothing to do with the business of a EV uh and and if you think about that value it's it's so interesting and important for a corporate treasury to consider and so from that perspective alone you see people like even miners that are

now Choosing to actually not sell right now so we're talking about producers as you mentioned Commodities producers they would go sell it predictable business well guess what Marathon just came out and they printed a multi-billion dollar paper on a convert in which they've s they've actually said the point is to buy Bitcoin right they also got rewarded by having it a 0% convertible note and so here you have producers that are actually also running along the thesis Of I'm not selling it into the market based on the price movement it's going to be a hold

asset and the Market's rewarding you for it so actually that also creates another dimension where the Commodities Dynamics is not necessarily translated the same way for crypto uh and the Bitcoin economy got it yeah that's a great explanation so okay we we've characterized the fact that you know Bitcoin has some properties that are that are unique from from Traditional Commodities that are making it so that this this volatility skew is persistent in in in the option structure so I want to take that and start to look into some of the data that we've seen from

the past few days so obviously we've had a a full day of trading yesterday on on ibit um and then we we're starting to see some flows come in on the other ETF that have launched their options now so I just want to get like a high level take of what are you Seeing the data in terms of who's buying these options um as it you know aspected more calls and puts um what's yeah like the put call ratio there what contracts are people focusing on and how is that volatility skew that we just uh

explained coming into how you're viewing things in terms of the actual data as it comes in yesterday was such an exciting day to finally see the pric might get structure come to develop in action uh and there were so many things uh that I Was fascinated by but maybe I'll highlight a few things uh and touch upon some of the questions you asked around what was the most important things to take away the first thing that was super obvious was even in that one intraday period you saw Bitcoin spot and impli volatility have a very

very unstable correlation so this is the other component of skew and the volatility smile that we need to incorporate at some level which is that generally these Things exist because people assume a certain spot ball correlation right so in other words if the market crashes volatility tends to go up right that's a known correlation for most assets um but Bitcoin yesterday had two like local Peaks and troughs and then eventually it a kind of it trickled down towards the end uh while Bitcoin was actually going down so that's also weird in itself right if bitcoin's

going down you expect ball to go up but it didn't they went Down together and as Bitcoin was going up for most of the day in a pretty steady way it was actually one of the steadiest up climb I think I've seen in the last 10 days Bitcoin ball was up and down and up and down right so the intraday correlation is actually really unstable and uh that's I think in a lot of ways where the opportunities to trade bega and Gamma will come in for for most investors um in terms of retail or institutional

interest on what found the Most amount of activity uh the thing that I took away was is the put call ratio was extremely skewed towards calls uh I think Eric plunz and other folks on the Bloomberg team tweeted about this as well um but it was fairly uh skewed um to the point of maybe four times five times call interests being higher than put interests what's really interesting here though is if you actually dig in to look at that book call ratio by expiration date you'll see a very Straight linear line down of that actually

exacerbating as you go out further in the term structure so when you go out all the way to the 2027 options that pull call ratio is less than 0.1 that's saying there's a 10 times imbalance for calls versus puts so that already tells you from day one that a lot of the positioning that people are interested is to the upside this is important because it's actually counter To a lot of the pundits that have been talking about why Bitcoin options is actually going to reduce volatility it's because people are going to want to come in

and start hedging their downside risk that's what options are for so actually uh Bitcoin volatility will likely go down uh because because of the introduction of these Financial derivatives that allow hedging uh and I disagreed with that at some level and yesterday was maybe a little bit of a of A Vindication to see that is maybe not going to be the case now it's early we're going to see lot more varied participation and different types of buyers in the future but I continue to believe that a lot of the folks are interested in finding ways

to build leverage into their positioning of Bitcoin that is more Capital efficient here's the reason when I am at front of clients at bitwise and I do this every day trying to enthuse the mission of Bitcoin adoption and why it's important for your portfolio in your 6040 allocation a a lot of investors will say if I just put like 1 to 3% then I guess that's the right size and you ask them like well why would that be the right size and what you hear often is that's the size in which if it goes to

zero it doesn't matter and if it goes up 10x it will be an important driver of my return overall sounds like a call option that's literally an Option yeah that's exactly what an option is and so you're what you're telling me is okay so these people are already thinking about allocating to an asset where it can go to zero and you're they're thinking about as a premium outlay well let me tell you if you're only going to put 3% of your notional into Bitcoin I can guarantee you you'll get much more leverage for that uh

cash out like if you use options and I think many people will still continue to Express their views this way because they're still very concerned about the symmetry of bitcoin's Total return profile yeah that's a really great point because I know like I I tweeted about this yesterday and I saw you you called it out as well as that like when I just look at the options chain right now like the furthest out XPR like January 2027 all the activi is on the on the furthest out strike like the 100 strike so I think you're

correct that there's a lot Of people that are just looking at it is like all right if I just you know put out you know they're trading at like yeah 16 bucks right now um you know you put that out there and you're like if it goes to zero that's okay but like I have a pretty convex upside uh potential payoff here in the next two years so people it it does seem like people are mostly going pretty big on some of those out- of- the money calls on that like this is not an irrational

thing by the Way so uh the contract that really um took my attention at some level uh on on these long-dated options is that you're paying like quite little premium uh over a period of time where the Decay is essentially going to be pretty non-exist non-existent so I think sometimes people think that these are lottery tickets that are worthless because the chance of it going in the money is so low and then it's basically going to Decay every day and it will Decay every day but when When you go out that far out of the

money and that far out in the tener it doesn't Decay that fast the the the option value is not going to change that much and so it really is a free call option like no pun intended it's like a call option of a call option uh and I do think that there are some sophisticated investors who are able to take advantage of this natural state of the funding model that supports these kinds of risk-taking I'm curious on that point Just looking at I was I was tracking pretty closely just the implied volatility that we launched

at and and where it went out through the part of the day and I was also having a look at like what is the historical implied volatilities on like darab bit and where we been there and I'm curious about your take like you know we're at 65 right now on on ibit like do you feel like that's low or is that where we should be and do you feel like that'll close pretty track Like track pretty closely to what we see on derit as well like what's your take on on where implied VA has settled

out here so far there's two questions in there I hear one is the relative um rank of the 6265 VA today and then the second question is the comparison between ibit VA and derit VA and where you think there might be a relationship um so on the first question I think that there is a lot of room for ball to still go up and it's because when you look at the Volatility cone of even the last year we're maybe about below 75 percentile slightly above the median the last time I checked on darab bits of

all distribution and the max was somewhere around 85 in the past year so there's room to grow um this isn't like micro strategy for example where we're about to hit 200 in play Vault today uh very very close to it that will be an all-time high and I would say there the risk is a little bit more um asymmetric To the downside of it coming in so so that's point one on the relationship between deraball and iitv I think that there is something really interesting which is if you think about terabit it's a Crypton native

exchange right and so you can trade those options anytime whereas IIT options you can't those are 9:30 to 4pm instruments so that means that derate options technically have a much longer shelf life for gamma monetization then the Ibid options will let you so fundamentally the shouldn't actually be treated the same way it's almost like let's imagine security a was Bitcoin between 9:30 and 4 and security B was Bitcoin between 4 pm and 9:30 a.m. and they're different beasts right they're different they they have their own trading pattern uh and derit is the option that gives

you a and b IIT gives you a uh and so what does that mean practically Speaking it means that if you believe that black shs is based off of the imply volatility being the clearing input for a Delta hedging replication portfolio you get almost uh half the more time to monetize that gamma with derit options than you will with ibit options and so even a few days ago I posted this on Twitter if you looked at the close to close ball of Futures there was a day when it looked like maybe Bitcoin moved like 30

bips but if you Measured all the intra uh day highs and lows the route and actually annualize that number it was 800% ball so if you could trade the gamma for those hours that you couldn't with an ibit option then technically that's free Theta you could make money leaning onto those exposure in a way that you couldn't have before so this is maybe a long way of saying that there are ways in which you still would imagine there should be one Volatility surface for one contract but now not I'm going to say there's going to

be somebody who's going to trade the ibit options but they're gonna trade the underlying Bitcoin spot 247 if you can do that you are the person that's outside the perfect Arbitrage pricing model that can do different things so this is why I continue to believe that crypto native derivatives Traders are going to make more money than those who have to be in One system or the other because you are able to live in both worlds and do things that Millennium for example couldn't do and Millennium is most likely going to be the price Setter for

the ibit V surface because they're the heaviest consumers most likely in the traditional system but if you can lean on that and trade Bitcoin throughout the weekends through Saturday and Sunday and over then you got yourself some free gamma Hey everyone this episode is sponsored by Pok dot out of the 500 protocols one of them is called origin Trail and they're building a verifiable internet for AI ensuring the Providence and verifiability of data to tackle challenges like bias and misinformation in AI systems used by global leaders like the British standards institution and the Swiss Federal

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like you know Bitcoin perpetuals like it's unlimited Data so you don't need to really worry about the the difference between like whether spot is is trading versus versus close or something like that versus like on on derit the options should be probably priced differently than the ibit options because the Theta is longer because it's open for trading all the time versus ibit is only open for what is it eight hours a day or whatever therefore if there's higher Theta you have more time for the option To end up you know basically in the money which

means I would imagine like a higher probability of of expiring in the money which therefore should lead to higher Vega and Delta do I have that right yeah that that's roughly right meaning uh the tldr here is those Vall in surfaces should not be the same they should not be the same ball if it's the same ball then you should absolutely go along the derit ball because it shouldn't be Um you know I think this is an incredible phenomenon where uh this moment in time for Bitcoin ETF options to exist uh it's it's really historic

because to me it's ultimately wall Street's answer to you know if you can't beat them join them it's that moment um Goldman you might have seen is now spinning out their digital asses team who knows what that's all going to be about I think it has to do more with the distributor Ledger technology uh instead Of trading but if you think about kind of the interest in tra this really is a seismic shift that signals Bitcoin is not anymore this outside system asset it's a Cornerstone of like our modern markets and it's now blending the

line between traditional finance and crypto and so for someone like me who approached crypto with a financialization interest as as well as a technological interest it's giving us a new era of Legitimacy um levered legitimacy if you will into the future construct of money and the money velocity Okay cool so I feel like we've done a pretty good job of like contextualizing the landscape that is existing now and I want to spend a little bit of time of understanding how our options dealers going to be dealing with this landscape that we just showed so obviously

you know we have way more calls and puts a lot more activity on out of the money than in the money um Especially long-dated ones we have this volatility smile they talked about so I want to just spend some time trying to unpack you know this is what gets really interesting these days is is so much of of spot price action gets driven by what is happening from the options dealers um I.E the market makers as another term so I want to start to unpack here you know step by step those different you know contextualizations

that we just went through what does that imply for how Options dealers are like what's their activity looking like within that context and what is the potential implications on spot price because of those you know hedging Dynamics the most important thing is to understand how dealers are positioned towards whether they're naturally short or long these options um and you will never have perfect clarity into their exact positioning um as to whether they're Longs or shorts of the open interest but You can generally tell and and and the reason is um most of the times with

upside as is seen in almost every asset people buy long ball to speculate uh you don't see the dealers necessarily doing that especially super long-dated unless it's coming from the back of like a principal protected buffered note type of transaction the Structured Products business which I think will arrive but it hasn't yet so knowing that it hasn't arrived yet we can almost certainly know All the people that bought those ibit long-dated out of-the money leaps are retail or institutional investors who want to take that directional risk so with that clarity now we know that there

are certain open interests where there's going to be what is called a gamma squeeze the gamma squeeze is a very uh I think now well known phenomenon once upon a time it was a little bit of an esary corner of derivatives Market but I think GameStop uh put it on the map for Everybody but I'll just give the quick 30 second overview the the the the concept of a squeeze a gamma squeeze is that um the dealers were naturally short those Vol uh ball exposure to hedge it will actually end up exacerbating the price movement

as a result of their hedging portfolio so if you're short calls right you have to buy stock to hedge as you go up you get shorter and shorter Delta so you got to buy more to keep hedging well now You're buying into strength that's called a gamma squeeze because you're literally the person that is contributing to furthering the movement of the price that is recursively now making you buy more that's not the case when gamma's long by dealers when gamma is long by dealers their hedging transaction is the reverse right so if I'm long call

as the dealer and I'm short the stock and the stock is going up so my Delta is increasing then my Hedge and portfolio is to sell the stock so when dealers are long gamma it's actually creating mean reversion when dealers are short gamma it creates momentum and so this is the thing that I think a lot of people are aware of there's not enough uh today to see exactly how large those gamma pins will become over time but I suspect that a lot of the interest would continue to build there you already saw that happen

on day one of of this going live which Actually blew my mind I didn't think it would be that fast I thought we would start seeing it over over or two but this was screaming to your face that this is what's going to continue to happen for for a while uh and so what that this ultimately means is that um the gamma squeezes are more likely going to be observable by all Market participants and so they're going to be able to think about uh those types of air pockets now we have to talk about Bitcoin

and the unique nature why this is even more of a phenomenon uh for for Bitcoin which is we just talked about this the skew for Bitcoin because it can melt up just as much as it melts down when it goes up a lot in price the ball actually goes up you saw that with micro strategy the fact that micro strategy is higher and now the imply ball is the highest that's ever been while it's had a consecutive run that's now over 50% this week alone shows you the incredible Correlation that is not typical of most

assets uh in the Securities world and so if V goes higher the input of that to Black shs means the Delta also goes higher so there's this hidden second order Greek and that's called aana which is that Mark to mark it you won't see it throughout the day but once you repic the options your Delta will have jumped because your V moved with you and it was not a static number you assumed at the beginning of the day so it means you're Under hedged and now you have to over hedge the next day and and

this is actually a pretty recursive thing and why I call it like adding fuel to the rocket that was already going to take off uh at an extraordinary level um and and this is the most powerful thing in my opinion that will accelerate the discovery of bitcoin's price in the future where folks would complain that some of this really just feels like Financialization that is creating paper flows and paper money and synthetic things that is diluting Bitcoin and and that's absolutely further from the truth all it's doing is it's it's accelerating the velocity of bitcoin's

price Discovery by being able to use leverage in a way that the system has not seen it before that's a really great explanation and it and it sets up my my question I have here which is what would I say is is one of the main points of perhaps Debate around the potential for this reflexivity to occur is you know you mentioned GameStop earlier which is why everybody knows what a g gamma squeeze is now it's because that's what happened there and as we know the reason that that reflexivity mostly ends is the ability for

the for the company to actually issue equity and basically stop that train from continuing so now we're in this world that you imply and we've talked about in the at the beginning of The show is because of the properties of Bitcoin um you know they can't issue more Bitcoin they they they can't they can't issue more you know Equity Bitcoin anything and stop that gamma squeeze from occurring and that's why this the volatility smile is so persistent so my main question and and perhaps you know debate around this is yes we cannot create more Bitcoin

but potentially we can perhaps create more Bitcoin derivatives as a means to to for dealers To actually hedge that so you know I've seen like a couple points of you know you mentioned that that dealers would have to buy the shares the Delta hedge but you know there could be the debate of I I've seen a couple points where perhaps they could actually you know just buy the Futures Contract or something like that or some sort of former derivative so to expand the derivative of of this hedging ability um so even though they cannot actually

buy You know we cannot issue more Bitcoin is there a potential for this not to occur because we can issue more derivatives of Bitcoin if that makes sense so I think what you're alluding to is that the nature of Leverage allows you to synthetically create more risk and exposure that isn't onetoone collateralized right this is why it is accelerating in my opinion the velocity rather than actually the creation of the state money because there is an Offsetting side to every one of these Financial transactions whenever you create a derivative where you're long there is a

short against it it's not just one direction can there be momentary glitches in ways where clearing can be an issue um where the financial infrastructure and it's Plumbing may not properly account for some of these notional rare but it's possible like this is actually a risk that I think we Generally have in the financial system which is why we have the OCC uh at the center and having them needed to sign off on the launch of these ETF options it is still possible today even though you're not allowed to short stocks naked that it could

happen right reg show was put in place so you you're not uh permitted to do it it's illegal but but it's not doesn't mean that it doesn't happen right sometimes it Could Happen um you know that being said for Bitcoin ETFs it's been very clean I have not seen actually any real material issues over the last six months in the ways that you would uh have worries about there being uncounted inventory by the market makers there's a lot of flexibility with the APS in the way that they deal with creation and redemptions to uh maybe

live in a little bit of this gray area with a lack of clearing but they generally uh sort that out in a matter of days uh and and they're not in The business by the way of taking those kinds of risk on balance sheet either and they're not motivated to do that so um you know APS for example are not really allowed to short naked that's literally why they're there to do the creates and redeems to avoid that types of outcomes they'll create the unit um so that's what I think is important to note uh

the other thing too is um the these derivatives uh are as as a Construct pretty useful for people that want to create structured payoffs that I think is additive for the crypto community in general if you think about um how Bitcoin has different price targets throughout the years in which they speculate over 2027 or 2028 um options actually give you a chance to like create payoffs that are more heer made for those things than like a linear bet so it's actually not just synthetic in creating Leverage The Way Futures Does like Futures is one for

one right um options actually isn't one for one you you you could create um custom payoffs where you have spreads and and different ways that um is a little bit more tailor made for the kind of risk you want to express and I think in general that's a net positive for any investor yeah that's what I'm super excited for is you know obviously everybody the retail gets excited to just buy outright leap calls and just You know send them to Baja but you know you can do things like you talk about like you know risk

reversals and more complex payoffs where you can really fine-tune The Leverage that uh you can enjoy and you know that's why like I personally am so much more excited about options than you know something like like the perpetuals market that we're so used to um and on that point I just want to hear a bit more about what you think is is how it's going to change Market Structure because you know for those that aren't deep in in the the Perpetual World um for crypto like we've been living in this world where it's dominant derivative

like obviously there is deran and all of that but like short-term price action of of crypto has been very very heavily skewed by perpose action how much open interest we see there what are the funding rates Etc so I'm just curious like what do you think is going to happen from here and out to Market Structure as we start to introduce um you know broad-based you know ibit options do you feel like the short-term Market structures going to be more awaited by options from here on out versus perss or do you feel like they're still

going to be sort of even or still mostly perss I think the number one thing is that uh because this is somewhat historic in the ways we have a lot of different issuers trading the same Underlying uh you're going to have a lot of volatility surfaces for the same commodity that isn't really seen elsewhere we don't have for instance like 12 gold ETFs that are traded and have their own ball surfaces um so at a high level I actually do think that there is going to be a lot of option trading that will capitalize upon

these types of inefficiencies between the V surfaces for instance there's no reason right bit wise's uh ETF V surface should Look very different from black rocks and grayscales but there but the reality is it does today at least uh Bitcoin uh ETF options for bit wise went live today and I've been watching it very carefully to see where the different trading is happening and and you can see that it's not perfectly efficient now we're early we still need more adoption across the curve um but I don't think today is uh representative of what we're going

to see in the future which is that there's Going to be a lot of smart people that are interested then in arbitraging this uh and when they do it will create additional flow it will create additional volume this is why today micro strategy actually is the number one traded stock ever in the world it's surpassed Nvidia today and it surpass Tesla why is that it's because there is so much option trading and the hedging uh activities around it and so the number one thing that I can be assured Of is that these kinds of volatility

Arbitrage opportunities will ultimately Accel accelerating creating more flows um and we're going to see continued um trading volume as a result of it uh whether that translates into Creations or redemptions those are you know dependent of net events but but I do think we can expect the trading numbers to go much much higher than we've seen uh for other uh you know regular spot base Exchanges just as we wrap up here I just want to you know try to provide like maybe maybe a toolkit for for listeners to be able to try to track and

understand what's going on or not so you know a little bit early in the show we talked about this idea potential gamma squeeze happening versus you know dealers trying to like pin gamma um so I just want to hear a little bit more about like obviously we we've contextualize that it's a very call Heavy landscape versus puts um and so obviously because you know Longs are buying a lot of calls that means dealers are going to have to be selling a lot of calls to those buyers which means that likely they're going to be short

gamma at the stage um which means they're going to have to buy some sort of long exposure to to spots So within that context like where do you feel like we are as a stand you know you mentioned that yesterday that you started to see Some some ideas some some flares flareups of of potential gamma squeeze but you know how How could somebody just track this and get a good idea of what's going on and just you know keep an eye on the landscape overall yeah the open interests are public information and so you can

pull them up by contract uh by strike and by XPR and the key is I think you have to do some work in aggregating the pin risk based on the actual Bitcoin spot you already know that all the ETFs Are debased differently uh on the on the size as to the representation of the Bitcoin price in itself and so there's some like ground work that needs to be done on to streamline the data so we're all looking at it based on bitcoin as a reference rate right not as like the etf's price but I think

once you do that uh you'll start to see where the stress points are developing and at least this moment in time uh there there isn't enough of Structured V selling activities to anticipate there would be any reverse Direction I don't think that will always be the case you saw grayscale fil for a Bitcoin covered called ETF we have to think about when that goes live and the size that it reaches that they will then actively be a participant in call selling which then will give dealers the chance to be long gamma and so that will

then offset some of the inventory risks they had otherwise um so there will be Dynamic developments to the kinds of flows to expect but at this particular moment in time I think it's pretty one-sided and and it's pretty skewed this is actually part of why I think ultimately the approval that was granted by the cftc and OC restricted position limits to be 25k per contract for iit's options right B sign its market cap and trading volume it should have been much higher than that it should have actually been at least 10 times that uh maybe

Upwards to 400,000 not 2 sorry that confused me a little bit so like the the open interest cannot be higher than 25,000 on each contract yeah what is it normally like what what do you think would be like a normal amount for something like this I think it could be uh as high as 10% in the limits of what is what is doable the reason why they're restricting this by the way is because um when you exercise options you need to find the locate for assignability and You can't over overwhelm the locate in ways where

it creates physical delivery type issues so there is some sense to not need not wanting to create so much uh open interest the chance that it creates those kinds of friction but with 25,000 that is less than 7% of the shares outstanding of ibid Max right I mean that's that's tiny that's never going to have an issue so you can imagine there's going to be some room there to uh to actually build into it The ultimate uh thing that I feel everyone is aware of both at the institutional level when they look at things like

micro strategy and the retail level when they have followed their experience of the GameStop is that truly the financial system in some ways it's broken um the margining model is actually broken uh we didn't get to talk about it at length Felix but there is a very real rational calculus as to why the funding model supports long Ball but It cannot possibly support shortfall uh and and the struggle that maintenance margin requirements uh methodologies will have against that with very volatile assets margining is broken in some sense uh I've known it since 2008 when I

started my credit Morgan stale now everybody knows about it and now we all share the uh Playbook as to the things we need to look out for and so the thing that I was chatting with one of my friends earlier today is that Based risk you know the way that crypto talks about based is the new risk-based I actually think there is such rationality in why people are buying long-dated calls that are bought for 15 cents that expire two years later because it never decays and you get the chance to own uh risk that's capital

efficient it's reciprocal and in fact it is the correct risk to take that based risk is actually the right one uh and so I Come Away thinking that um Crypto is living in that moment in time where uh hopefully this all then leads to the discovery of new Prime brokerage models uh I was actually at salana not so lot of multi coins investor day yesterday where one of the portfolio companies um drift had imagined what a true Prime brokerage that can do uh real-time permissioning across assets could look like I think that crypto's long-term viability

in future will be compounded By the discovery of these types of financial Primitives as well totally yeah I really like that point and you know even it ties back to what we talked at the very beginning of the show which is is like how do you measure risk right and you know like traditional risk models it's just like yeah you just take like the expected you know standard deviation or whatever but if if something just like explodes randomly like and and then that assumes you know Like a normal distribution underlying it to and it's like

is is it even like normally distributed um and so I I really love that point and then you get to the question of like you know should we really be measuring returns in like a sharp ratio basis or like you say should it just be like based risk-taking that's right if you look at your disclosures on your brokerage accounts as to how they provide margin and reg T you'll see that implied Volatility is not even an input they actually will say all right if it is like this much out of the money then maybe it's

less risk so you have to P less collateral and if it's you know more at the money then it's more risky so you know you need to post most collateral but actually the relative frame of reference for that moneyness really should take volatility as an input it matters if I'm actually looking at that money for a treasury Bond or Nvidia 15% out of the money for those two assets don't mean the same thing and so that's already in my opinion one of the most critical issues the second thing is the margin models don't take expiry

and duration into account so you could literally bring the same option that has a two-year expir and a two-month expir and the funding charge is essentially the same uh in in the ways that most retail brokerages will be charged for uh that's really I Mean I think my my son will eventually figure that doesn't make sense in a couple years uh so this is it this is the base RIS world that we live in I love it I love it that's a great way to end it um Jeff really enjoyed having you on the show

learned a few things there that was really fascinating I think people really enjoy the the options Deep dive so thanks for joining yeah have it of year let's revisit this in a time where the landscap a little completely Different and I'd love to jam about what we're seeing then as well yeah exactly and just so that we're all clear on things are today I just look the put call ratio is at 24 so we'll see where we're at in a few months and maybe we can revisit then and see if those covered call ETFs start

to affect one more thing one more thing that I plug in for anyone who's listening and they are sophisticated passionate professional retail Traders I go back to re urging The point to look across the volatility surfaces of all these issuers I do think this is a rare moment in time before there's a lot of institutional trading activity where if you are smart capable you can find uh more efficient Arbitrage opportunities uh and should spend time to make sure you're getting best price best execution based on a little bit of research um and uh I would

urge folks to look at all the ETF issuers across the Bitcoin complex outside of outside of black rocks for that particular reason if you're a retail investor I love it well said and you won't say but I will but there is obviously the bit wise ETF so there you go thank you thank you all right thanks yeah there's over 00 protocols building on polka dot and one of them is called polych polych is a decentralized community-driven funding protocol on polka dot enabling regulatory compliant And transparent fundraising of web 3 polych ures compliance with a novel

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