Mehdi Lebbar, co-founder of Exponential.fi, sees “the perfect storm” developing for Bitcoin. He predicts that Bitcoin’s price movements will become even more explosive thanks to the approval of ETF options in the United States.
But why exactly? What do the options mean for Bitcoin?
Gamma Squeeze and Reflexivity Squared for Bitcoin
In his piece for Cointelegraph, Lebbar uses some tricky terms. For example, he predicts that the options for Bitcoin ETFs can cause a so-called Gamma Squeeze.
We speak of a Gamma Squeeze when the price of Bitcoin rises so much that traders who sell options are forced to buy more BTC to cover their risks. This should then cause a chain reaction that will drive the price up even further.
As a result, the options strengthen the “reflexivity” of Bitcoin. Reflexivity is a term from the financial world that, applied to Bitcoin, indicates that people’s perceptions about the value of BTC can actually change the price.
When people think Bitcoin is rising, they buy more, causing the price to indeed rise. Lebbar even speaks of “reflexivity squared,” indicating that this effect is given an extra layer thanks to the options on Bitcoin ETFs.
Not only does price respond to investor perceptions, but also to the actions of traders who need to hedge options, resulting in stronger and faster price movements than normal.
Lebbar’s conclusion? The adoption of options on Bitcoin ETFs could make BTC price movements even more dramatic.
More volatility to come
If Lebbar is right, it would mean that Bitcoin will become even more volatile in the short term.
In the long term, this is not desirable for Bitcoin, because many people still hope that it can one day function as a means of payment. If the rate fluctuates enormously, as we have seen in recent weeks, then that is of course not useful for a payment method.
Now it is less bad when the price rises, but worse when the price falls. If you own a bakery or restaurant and your profit margins are small, it is not nice if the payment method you accept can drop by 20% in one day.
If volatility increases even further due to options on Bitcoin ETFs, BTC as a means of payment may become more distant than ever.
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Source: https://newsbit.nl/analist-dit-is-de-perfecte-storm-voor-bitcoin/
