BlackRock’s spot bitcoin exchange-traded fund has been a large hit since launch, pulling in billions from buyers looking for publicity to the cryptocurrency with out the effort of crypto wallets or exchanges. Merchants and analysts religiously observe inflows into the fund to gauge how establishments are positioning out there.
Now they could should do the identical with choices tied to the ETF, as exercise exploded throughout Thursday’s crash. In keeping with one observer, the document exercise stemmed from a hedge fund blowup, whereas others disagreed, citing routine market chaos as a catalyst.
What actually stood out
On Friday, because the ETF tanked 13% to its lowest degree since October 2024, choices quantity exploded to a document 2.33 million contracts, with places narrowly outpacing calls.
The truth that places noticed extra quantity than calls on Thursday signifies a better demand for draw back safety, a typical prevalence throughout worth sell-offs.
Choices are spinoff contracts that present built-in insurance coverage towards swings within the worth of the underlying asset, on this case, IBIT. You pay a small charge (premium) for the suitable, however not the duty, to purchase or promote IBIT at a set worth by a deadline or expiry.
A name possibility helps you to lock in IBIT at a set worth at present for a small premium. If it rallies above that degree later, you purchase low cost and promote for revenue; if not, you solely lose the premium. A put possibility locks within the sale of IBIT at that worth. If it slides beneath, you promote excessive and pocket the distinction; in any other case, you lose simply the premium. Calls provide leveraged upside bets, whereas places shield towards draw back drops.
One other standout determine was the document $900 million in premiums paid by IBIT choices patrons that day—the best single-day whole ever. To place it in context, that is equal to the market cap of a number of crypto tokens rating past the highest 70.
Speculative principle: document exercise tied to hedge fund blowup
A submit by market analyst Parker, which has gone viral on X, argues that the $900 million premium funds resulted from the blowup of a big hedge fund (one or a number of) with almost 100% of cash invested in IBIT. Funds usually give attention to only one asset, avoiding spreading out threat publicity elsewhere.
Parker’s submit alleges that this fund initially purchased low cost “out of the cash” name choices on IBIT following the October crash, anticipating a fast restoration and larger rally.
These OTM calls are like low cost lottery tickets at ranges effectively above the continued worth of the underlying asset. If the asset rallies previous these ranges, these calls make important cash; if it would not, patrons of those calls lose the preliminary premium paid.
Nevertheless, the fund purchased these calls utilizing borrowed cash. As IBIT continued to drop, they doubled down on their wager.
On Thursday, as IBIT crashed, these calls tanked in worth and brokers hit the fund with margin calls demanding money/collateral. The fund, having bled cash elsewhere, was unable to supply the identical and ended up dumping giant quantities of IBIT shares out there, leading to a document $10 billion spot quantity.
The fund additionally desperately changed expiring calls or closed loss-making calls, leading to a document $900 million in whole premium funds. Basically, Parker associates the document exercise with one or a number of large gamers scrambling, not routine buying and selling.
Shreyas Chari, director of buying and selling and head of derivatives at Monarq Asset Administration put it finest: “Systematic promoting throughout the majors yesterday most likely tied to margin calls particularly within the ETF with the best crypto publicity IBIT.”
“Rumors swirled of a brief choices entity that needed to promote the underlying way more aggressively after 70k after which 65k broke, most likely tied to liquidation ranges. This exacerbated the transfer right down to 60k,” he defined in a Telegram chat.
Choices professional disagrees
Tony Stewart, founding father of Pelion Capital and an choices professional, believes IBIT choices added to the market chaos, however would not go as far as guilty a single fund blowup for the entire crash and document exercise.
He argued on X, citing Amberdata, that $150 million of the $900 million in premiums got here from shopping for again put choices. In brief, merchants who had beforehand bought (shorted) places confronted important losses as IBIT crashed and people places surged in worth, in order that they repurchased them to chop their threat.
These had been “actually painful” closes, he mentioned on X, including that the remaining portion of the $900 in premiums comprised principally smaller trades, which is fairly normal for the hectic buying and selling day.
In essence, to Stewart, the document exercise is simply the messy noise of a broadly panicked market, not a smoking gun pointing to a single means. “This [hedge fund blowup theory] is inconclusive from the Choices standpoint. It additionally would not appear sufficient tbh in dimension,” he concluded.
Nonetheless, he acknowledged the likelihood that some exercise may have been hidden in over-the-counter (privately negotiated) offers.
Conclusion
Whereas Parker related the dots to level to a hedge fund blowup, Stewart challenged the identical with onerous knowledge.
In any case, this episode highlights that IBIT choices are actually giant sufficient to wield affect, and merchants would possibly need to maintain observe of them simply as they do ETF inflows.
