IBIT Sees Record Trading Amidst Price Decline and Surging Options Activity
On a recent Thursday, BlackRock's spot Bitcoin exchange-traded fund (ETF), IBIT, experienced record trading volumes for both its shares and options contracts, coinciding with a significant price decline. The ETF recorded over 284 million shares traded, amounting to a notional value exceeding $10 billion, while its price fell by 13% to under $35.
Simultaneously, options activity reached unprecedented levels, with 2.33 million contracts traded and $900 million in premiums paid, sparking market theories regarding the underlying causes.
Market Performance and Significant Redemptions
On Thursday, IBIT's trading volume of over 284 million shares, valued at more than $10 billion, surpassed its previous record by 169%. Concurrently, the fund's price dropped by 13%, reaching below $35, its lowest point since October 11, 2024. This extended IBIT's year-to-date loss to 27% from its peak price of $71.82 in early October.
The fund also processed redemptions totaling $175.33 million on the same day. This figure represented 40% of the cumulative net outflow of $434.11 million across 11 Bitcoin funds, according to data from SoSoValue. IBIT, which holds physical Bitcoin and aims to mirror its spot price, is currently the world's largest publicly listed Bitcoin fund. The underlying cryptocurrency, Bitcoin, also saw declines on Thursday, falling to approximately $60,000.
Analysts have interpreted the combination of record trading volume and a significant price decline as a potential signal of capitulation, suggesting that long-term holders might be selling assets at a loss. This phase is sometimes seen as indicating peak selling in a bear market, potentially signaling the beginning of a bottoming process.
Unprecedented Options Activity Surges
In addition to its spot market activity, IBIT's options market also saw record engagement. On Thursday, as the ETF's price decreased, options volume reached a record 2.33 million contracts. Put options, which provide downside protection, recorded slightly higher volume than call options, indicating increased demand for hedging against further price declines.
Premiums paid by IBIT options buyers also hit a record $900 million on that day, marking the highest single-day total ever for the fund's options.
MarketChameleon data showed that longer-duration put options reached a record premium exceeding 25 volatility points above call options, with a strong put bias frequently interpreted as an indicator of heightened market apprehension.
Conflicting Theories Emerge on Market Drivers
The surge in options activity led to various market theories regarding its cause. Market analyst Parker proposed a theory, which gained traction online, suggesting that the $900 million premium payments stemmed from a large hedge fund's financial distress.
The "Hedge Fund Distress" Theory
This theory posited that a fund heavily invested in IBIT might have initially purchased "out-of-the-money" call options using borrowed funds, anticipating a market rally.
As IBIT's price declined, the fund allegedly faced margin calls, leading to the sale of substantial amounts of IBIT shares, contributing to the record $10 billion spot volume, and a need to close or replace expiring call options, resulting in high premium payments.
Shreyas Chari, director of trading at Monarq Asset Management, also noted "systematic selling across the majors yesterday probably tied to margin calls especially in the ETF with the highest crypto exposure IBIT." Chari referenced rumors of a short options entity selling underlying assets more aggressively after key price levels were breached, which could have exacerbated market movement.
Expert Disagreement and Alternative Views
However, Tony Stewart, founder of Pelion Capital and an options expert, acknowledged the contribution of IBIT options to market volatility but disagreed with the single hedge fund blowup theory. Citing Amberdata, Stewart stated that $150 million of the $900 million in premiums originated from the repurchasing of put options, suggesting traders were closing loss-making positions as IBIT's price fell. He suggested that the remaining portion of the premiums comprised mostly smaller, routine trades typical of a volatile trading day.
Stewart concluded that the hedge fund blowup theory was "inconclusive from the Options standpoint" and did not appear to be of sufficient size to fully explain the entire event, though he did not discount the possibility of hidden over-the-counter deals.
The episode underscores the increasing influence of IBIT options in the market, suggesting that monitoring these options, alongside traditional ETF inflows, may be relevant for assessing market sentiment and positioning.