The launch of U.S. spot bitcoin ETFs marked a structural turning point. The iShares Bitcoin Trust ETF (IBIT) rapidly became one of the fastest-growing ETFs in history, drawing tens of billions into a regulated vehicle. Less discussed, but equally important, is what followed: the rapid expansion of IBIT options.
Over the past year, open interest in IBIT options has climbed into the multi-billion-dollar range. On selected high-volume sessions, activity has approached levels historically associated with Deribit, the cryptocurrency futures and options exchange. A meaningful share of bitcoin's convexity now sits inside U.S. equity options markets rather than offshore crypto venues.
That shift matters because it changes how volatility is transmitted.
From offshore leverage to onshore gamma
For most of its history, bitcoin (BTC) volatility was driven by offshore perpetual futures. Funding imbalances, leverage build-ups and liquidation cascades shaped price action.
ETF options introduce a different mechanism.
When investors buy calls or puts on IBIT, dealers typically sell that optionality and hedge delta exposure. If dealers are short gamma, which is common when investors are net long options, they must buy as price rises and sell as price falls. These hedging flows are inherently procyclical and can amplify underlying moves.
Because IBIT holds physical bitcoin, hedging does not remain confined to the wrapper. Arbitrage and creation and redemption flows transmit ETF positioning into the underlying market. Bitcoin increasingly participates in the same positioning mechanics that influence equity indices.
The structure of ETF options markets, where investors are generally net long optionality, suggests dealers are often warehousing short gamma during periods of elevated demand. This dynamic likely intensified during the February episode, when volatility had been subdued and crypto-native participants accumulated downside puts. Sustained option buying in a low-volatility regime leaves market makers short convexity across both ETF and offshore venues. When spot breaks, hedging flows can reinforce the feedback loop. In the graph below we show the movement of IBIT option volume and BTC U.S.-hours realized volatility. We can see that the relationship has strengthened over the past weeks.
Chart 1 illustrates the co-movement between IBIT option volume and BTC U.S.-hours realized volatility, showing that their relationship has strengthened in recent weeks. To formally evaluate this relationship, we regress bitcoin realized volatility on lagged IBIT options volume while controlling for BTC funding rates, equity returns (Nasdaq Composite), implied volatility (CBOE Volatility Index, or VIX), short-term interest rate changes and U.S. dollar movements. The results indicate that IBIT options trading activity is significantly associated with BTC volatility even after accounting for broader macroeconomic conditions.
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