Context and chronology

Liquid options built around the iShares IBIT wrapper have begun to shift a meaningful tranche of bitcoin’s marginal convexity from offshore perpetual markets into U.S. equity‑style options venues and cleared stacks, concentrating price‑formation into U.S. trading hours. Open interest in IBIT‑linked series is now in the multi‑billion‑dollar range, and recent intraday activity showed options volume topping roughly 2.33 million contracts with estimated premiums paid near $900 million—flows large enough to change intraday liquidity and price discovery.

Empirical checks support a mechanistic transmission: realized volatility has become more concentrated in U.S. hours, and regression tests link IBIT option volume with higher subsequent hourly bitcoin volatility after controlling for funding, rates and equity returns. In a pronounced early‑February stress window, near‑dated CME basis shifted from about 3% to near 9%, consistent with multi‑strategy desks compressing gross exposures and rotating between ETFs, cash and futures. Dealers selling optionality accumulated short‑gamma exposures; their delta‑hedges were mechanically procyclical—buying into rallies and selling into falls—which amplified underlying moves until rebalances and ETF creation/redemption plumbing restored balance.

The market narrative around the acute event is contested. One account points to concentrated leverage—a large, heavily‑levered manager with outsized far‑OTM call exposure whose forced liquidations rippled through options and spot. An alternative interpretation describes a more distributed deleveraging: widespread put buybacks, scattered option closures and many smaller hedges that collectively strained displayed depth. Both narratives are consistent with observable facts: the ETF’s intraday share price plunged (approximately 13% on the peak day), same‑day ETF redemptions for U.S. spot products were sizeable (roughly $818 million that session), and aggregate on‑exchange dollar buffers have contracted (major dollar‑pegged stablecoins near $258 billion), all of which reduce the shock‑absorbing capacity of the market.

Order‑book footprints during the episode displayed a resistive band of offers and a nearby concentrated bid cluster that, once breached, left little displayed depth—conditions that allow margin calls and programmatic unwind logic to cascade. Tactical interventions (for example, some venues converting stablecoin reserves into BTC and pledging protection‑fund replenishments) blunted immediate tail risk but did not eliminate the structural linkage between onshore options convexity and spot discovery. Researchers such as Gregory Mall of Lionsoul highlight how hedging mechanics inside regulated markets now dominate marginal volatility formation, distinguishing this regime from the prior perpetual‑funding era.

For institutional investors and risk teams, the practical takeaway is clear: option‑market exposures, gamma profiles, creation/redemption flows and on‑exchange dollar liquidity are now first‑order inputs for intraday risk monitoring. Allocators should expect BTC to behave more like a traded risk asset on short horizons—tightening correlations with high‑beta equities during U.S. sessions and raising cross‑asset contagion risk—while dealers and clearing venues will capture fee pools even as they accumulate short‑gamma liabilities that can magnify stress. The policy and operational implication invites scrutiny of margining, disclosure and auction mechanics so that exchanges, custodians and regulators align incentives to mitigate procyclical deleveraging. For more detail and charts, see the original analysis at Coindesk — Crypto Long & Short.