Welcome to the Forward Guidance newsletter, brought to you by Casey Wagner, Ben Strack and Felix Jauvin. Here’s what you’ll find in today’s edition:

• Felix chatted with Bitwise’s Jeff Park about the bitcoin ETF options launch. There are a few major takeaways. 

• Big changes are happening at the SEC. 

• Bitcoin is rallying and companies just keep buying. Ben has the details.

BTC ETF options launch takeaways

This week I had the pleasure of interviewing Jeff Park, head of alpha strategies at Bitwise Asset Management, to unpack the BTC ETF options launch this week. 

Here are the main takeaways from our discussion:

Volatility Smile

Typically with risk assets, puts demand a higher premium than calls. This is because most people use options to hedge their longs, creating skewed demand for puts over calls. This typically creates a half smile in the volatility structure as seen below:

Something very unique about crypto, however, is that it has a persistent smile to its volatility surface — where calls are equally as juiced as puts, creating a “smile” in the volatility surface:

Often this smile only occurs in commodity assets during supply shocks, where demand outpaces available supply and prices surge. However, since supply can then increase to a new equilibrium with demand, the price will then revert and the volatility smile ends. What is unique about Bitcoin, however, is due to the difficulty adjustment that makes that supply adjustment like you see in traditional commodities impossible, the smile remains persistent and permanent. This is extremely unique.

Call Heavy Flow

The vast majority of the options activity has been in out-of-the-money calls. As we can see in the chart below from Bloomberg Intelligence’s Eric Balchunas, most of the activity has been in either marginally OTM calls or as far out as the strikes are currently available:

Further, we can see that 82% of the first day options volume on IBIT was from calls:

Deribit vs TradFi options

One interesting takeaway I learned from Jeff is that Deribit, a crypto options exchange that is open 24/7, should have BTC options that are priced differently from the ETF options. The key reason for this is that because of theta, otherwise known as the time to expiry. Since Deribit options are constantly live for trading, the theta — and therefore the volatility — should sit at a premium to the ETF options, which only trade during standard market hours. 

Most on IBIT

Finally, despite yesterday being the launch day for all the other ETF’s options, we’ve seen the vast majority of the notional exposure reside within BlackRock’s iShares Bitcoin Trust (IBIT):

This makes for much wider spreads on the other ETFs given there’s much less liquidity available. 

Overall, the market structure has changed significantly this week with the launch of ETF options. Whereas traditionally short-term market structure was largely a function of perpetual futures, options flow dynamics will increasingly play a larger role in the price action.

For a deeper dive into other implications of this major market regime change, check out my interview with Jeff Park.

— Felix Jauvin

The combined trading volume from several crypto stocks and the US spot bitcoin ETFs on Wednesday, according to Bloomberg Intelligence data. 

Below is one more Eric Balchunas chart. It shows what he called “The Bitcoin Industrial Complex” shattering the previous daily record of around $40 billion of volume. 

Investors trading MicroStrategy stock made up more than half that volume (~$32 billion), Balchunas noted. MSTR’s stock price has risen about 35% over the past five days, as of 2 pm ET — though shares were down 4% on the day at that time.

It was a busy day at the SEC. Chair Gary Gensler, who has led the agency since 2021, announced that he would be resigning on Inauguration Day. 

I guess we’ll never know if Donald Trump was serious about wanting to fire Gensler, or if Congress would have put up a fight. 

The statement came just moments after a Texas judge sided against the securities regulator, ruling that the SEC’s dealer rule is in violation of the Administrative Procedure Act and must be vacated. 

Lobbyist groups the Blockchain Association and the Crypto Freedom Alliance of Texas brought the case in April 2024. It frankly never got much media attention, but this judgment is a big deal. It’s not often a court vacates an agency rule. 

“The rule as it currently stands de facto removes the distinction between ‘trader’ and ‘dealer’ as they have commonly been defined for nearly 100 years,” Judge Reed O’Connor wrote in the opinion. “The court refuses to allow such a broad expansion of the Exchange Act by way of this rule.” 

The SEC could appeal the decision, and normally I’d say they probably would. But with a change in leadership, it’s hard to know what may happen. 

Gensler’s announcement was obviously planned before the ruling was issued, though, and his resignation itself is not a huge surprise. As we’ve written before, it would go against a long-standing precedent if Gensler opted not to leave voluntarily after his nominating president (Joe Biden) moved out of the White House. 

— Casey Wagner

Marathon Digital clearly plans to keep up its BTC buys amid a rally that has sent the asset’s price to new highs. And they’re not alone. 

The bitcoin miner revealed Thursday that it completed its offering of 0.00% convertible senior notes (due 2030). Net proceeds from the sale amounted to roughly $980 million — a majority of which will be used to buy more bitcoin and for “general corporate purposes.”

Marathon held 27,562 BTC on its balance sheet, as of Oct. 31. That represents roughly 8% of the 331,200 BTC held by MicroStrategy, the largest publicly traded holder of bitcoin.

MicroStrategy founder Michael Saylor alluded to Marathon’s CEO during a Tuesday X space when asked whether there’s an amount of BTC MicroStrategy could buy that would be detrimental to the bitcoin network. 

“As much as I would like to buy all the bitcoin, I don’t think Fred Thiel’s going to let me buy all the bitcoin,” Saylor said. 

He added: “And if Cynthia Lummis’ bill gets taken by the Senate and House — and signed in the White House — then the US government’s going to be bidding against me.”

More companies have started to name BTC as a reserve asset. Singapore-based Genius Group said Thursday morning it added another $4 million of bitcoin to its treasury and is targeting a reserve holding at least $120 million worth of BTC.

Tech giant Microsoft has a proposal in front of them to consider diversifying its balance sheet with bitcoin. Saylor said the “activist” behind it invited him to give a three-minute presentation to the board next month; the MicroStrategy executive accepted.

“It’s tricky to actually find a board that gets aligned with the management team and moves forward, and that’s why you haven’t seen as many companies act as aggressively as they could,” he said on the X space.

But, Saylor noted he expects that to change in 2025: “I think this will be an exponential process that’s going to pick up speed here.”

— Ben Strack

• Nvidia shares pared losses midway through Thursday’s session after dipping slightly Wednesday evening — even as the company posted a beat-and-raise Q3 earnings report. NVDA was up 0.8% on the day at 2:30 pm ET. 

• Initial jobless claims fell again in the week ended Nov. 16, coming in at 213,000. Analysts had expected 220,000 new applications. 

• Former US Rep. Matt Gaetz announced Thursday he was withdrawing from consideration as Donald Trump’s nominee for attorney general.