10/3/24 Roundup: Money Printers Warming Up

If China, Japan, the U.S. and other governments continue to take the easy route of money printing, expect more rancor by the asset-light wage earner.

There is little doubt that technological innovation is core to breaking this destructive cycle and it’s not lost on industry participants, and even some politicians.

From Europe, to Ohio, some politicians recognize that innovative industries are crucial to sound governance and economic sustainability. Last month, former Prime Minister of Italy and President of the European Central Bank, Mario Draghi, penned several hundred pages as to why Europe is facing an existential crisis and why innovation is the way out.

Closer to home, Ohio Senator Niraj Antani proposed a bill to require the state of Ohio and all its subdivisions to accept cryptocurrencies, including bitcoin. Antani gave a shout out to former Ohio State Treasurer, Josh Mandel, who spearheaded a similar effort in 2018 that was passed, but reversed a year later due to unclear regulations.

In the U.S., traditional market incumbents are pressing ahead. The approval of listed options on BlackRock’s BTC ETF (IBIT) may be more impactful than the anticipation and launch of spot BTC ETFs this past January in the U.S.

First, the notional value of derivative instruments are multiples more than their underlying spot or funded instruments.

Second, the bitcoin ETF options will provide institutions with a key tool to manage the asset’s volatility, potentially increasing the pace of adoption. Listed options also often require less margin than OTC options and tend to be more liquid. One caveat we note is the mismatch of option market hours to the 24/7/365 nature of the underlying spot asset, bitcoin.

This is relevant as the vast majority of the S&P 500’s gains over the past decade have been ‘on open’, meaning the price change occurs when the market is closed. Bitcoin’s volatility is ~65%, ~4-to-5x that of the S&P 500. We mention this as call overwriting is a Wall Street staple, employed by institutions and high net worth individuals for decades. But with bitcoin options on your IBIT, caveat emptor.

Bitcoin’s positive skew paired with that liquidity mismatch could make for some very unhappy call sellers that miss out on the type of large, sustained moves bitcoin has posted. We deem the introduction of listed IBIT options as a positive. Knees will be skinned, but it is clear that Wall Street is slowly appreciating the novel technology of the decentralized, scarce, digital asset that is bitcoin.