Cost of Protecting Against Bitcoin ETF Price Drops Hits Record High

Overview

Protection against declines in the price of BlackRock’s spot bitcoin (BTC) ETF, known as IBIT, has reached its highest cost since the market downturn in early April.

Key Points:

The one-year IBIT puts are trading with a 4.4 implied volatility premium over calls, marking the widest gap since early April.
This jump indicates a rising demand for downside protection.

Market Insights

Currently, the spread between implied volatilities (IV) for 25-delta puts and 25-delta calls for the iShares Bitcoin Trust ETF (IBIT) has peaked at 4.4, the largest since April 10, as reported by Market Chameleon.

In essence, put options, which serve as insurance against price drops in the underlying asset, are experiencing a 4.4 IV premium relative to calls. This trend suggests that investors are increasingly looking for safeguards against price declines, reflecting heightened concerns over IBIT’s short-term outlook.

On Monday, IBIT gapped down to $65.72, mirroring losses seen overnight in the spot bitcoin market. By the time of this report, the ETF shares were priced at $65.44, a decrease of 1.51% for the day, following a recent peak of $69.89 last week, based on data from TradingView.