Opinion by Mehdi Lebbar, co-founder of Exponential.fi, and a crypto enthusiast who has navigated through multiple market cycles:
Opinion by Mehdi Lebbar, co-founder of Exponential.fi.
Currently, Bitcoin (BTC) is the globally resonant asset experiencing a strong feedback loop. Notably, the U.S. Securities and Exchange Commission has given the green light for several Bitcoin-based exchange-traded funds (ETFs). Upon their release, these ETF options can trigger gamma squeezes, mirroring a reflexive effect. In essence, this is reflexivity amplified, potentially resulting in extraordinary price fluctuations that have never been seen before.
The launch of spot Bitcoin ETFs was already a landmark event for the financial world. In their first month, BlackRock’s and Fidelity’s Bitcoin ETFs attracted unprecedented inflows, each accumulating $3 billion — setting records for ETF launches.
To put it simply, that initial event was just a start. What truly has potential to make a difference is when options trading becomes available for these ETFs, as this might greatly enhance market liquidity.
Bitcoin: The most reflexive asset in the world
Financial markets are heavily shaped by human actions and attitudes. George Soros introduced the idea of “reflexivity” to explain how perceptions about a market can influence its actual state, and vice versa. In many ways, Bitcoin embodies this concept more than any other asset. As its value increases, it attracts more interest and investment, which in turn pushes prices up even further.
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Distinguished financial figures like Jamie Dimon and Warren Buffett have spoken against Bitcoin due to its self-reinforcing characteristics. They claim that it has no inherent worth, as its value appears to fluctuate based on opinion rather than tangible factors. However, this is exactly what makes Bitcoin unique: it’s the most self-reinforcing asset because its supply is genuinely limited, more so than precious metals or high-performing stocks. The scarcity of Bitcoin gives it fundamental value.
Bitcoin ETF options and the gamma squeeze
Adding an extra dimension to Bitcoin’s responsive behavior, options trading on Bitcoin ETFs allows investors to hold a contract that grants them the privilege, not the requirement, to acquire or sell Bitcoin ETFs at a fixed price in the future. When investors anticipate that Bitcoin’s value will grow, they opt to buy call options for these ETFs. In response, the entities selling these options are compelled to safeguard their position by acquiring Bitcoin or Bitcoin ETFs, thereby boosting demand for the underlying asset.
The act of hedging can trigger what’s called a “gamma effect,” where an upward trend in Bitcoin’s price forces option sellers to purchase more of the asset as a protective measure. This increased buying drives up the asset’s cost, which in turn amplifies price fluctuations. Similar to how things work in nature, this gamma effect creates a self-reinforcing cycle that can intensify price changes and potentially lead to substantial price increases.
As a researcher studying the evolution of Bitcoin, I’ve noticed that its advocates often highlight its decreasing volatility over market cycles, implying that as adoption expands, it could potentially function as a reliable standard of measurement in the future. However, in the short term, the introduction of options trading for Bitcoin ETFs might bring about increased volatility, presenting both opportunities and risks.
Reflexivity squared
The initial observation is that Bitcoin is truly scarce in nature. The second observation revolves around the anticipated Bitcoin ETF options, which may lead to gamma squeezes. As each increase in price encourages growing optimism and aggressive hedging strategies, we might witness a cumulative impact that could drive Bitcoin’s value to heights once considered unlikely.
In this evolving phase of Bitcoin Exchange-Traded Fund (ETF) possibilities, the prospect of significant price surges feels increasingly tangible. The interplay of reflexivity is amplified, suggesting we could be on the brink of a powerful price surge that might resemble a perfect storm for Bitcoin’s value.
Mehdi Lebbar serves as one of the founders for Exponential.fi, a venture dedicated to providing DeFi (decentralized finance) investment opportunities to everyone. With a diverse background that encompasses investment banking, tech startup development, and cryptocurrencies, Mehdi brings unique expertise to the table. He has also earned an MBA from the esteemed Harvard Business School.
In this post, we’re offering general insights, not intended to serve as legal or financial guidance. Please note that any perspectives shared are solely those of the author and may not align with CryptoMoon’s viewpoints.
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2024-11-20 22:03