Parker White: Bitcoin price decline linked to IBIT of options compression, Hong Kong hedge fund influence, and risks of short volatility strategies.

Key Takeaways

• The recent decline in the crypto market is largely due to the growth of Bitcoin outflows and the actions of large wallets.
• The significant drop in the price of Bitcoin on February 5 was probably caused by the depression in the options market on the IBIT platform.
• Bitcoin’s integration into global finance is evidenced by the size of the IBIT options market.
• A non-crypto hedge fund in Hong Kong may influence the price movement of the crypto market.
• A separate margin can prevent losses from affecting other assets within the company.
• The Hong Kong-based fund may have been involved in recent market disruptions.
• The recent Bitcoin price decline was the result of poor trading choices and a significant drop in volatility.
• Short volatility strategies can generate income in Bitcoin Holdings but carry significant risks.
• The volatility of Bitcoin markets may mean reversals, but unexpected events can lead to huge losses.
• Investment funds sometimes hide problems instead of solving them, leading to catastrophic failure.
• The current market situation may lead to a failure similar to the ‘volmageddon’ of 2018.
• The Hong Kong-based fund, which holds the largest IBIT, is likely to experience a major blowout.
• 15th May will be an important day to check the health of fixed income holding IBIT.
• The IBIT options market has grown to become the fourth most liquid options market in the world.
• Harvesting Bitcoin volatility is a common way to generate income similar to that used for a single stock.

Guest introduction

Parker White is the Chief Operating Officer and Chief Investment Officer of DeFi Development Corp. He served as Director of Engineering at Kraken Digital Asset Exchange from December 2018 to March 2025. Previously, he was Director of Research and Trading at TCG Advisors, a $2B institutional asset manager.

The impact of derivatives on the crypto market

• “The recent collapse of the crypto market is due to the increase in bitcoin outflows and the actions of large funds.” – Parker White
• Bitcoin outflows have had a significant impact on market movements, leading to volatility.
• “I think this is the biggest growth in bitcoin output and the big wallet that comes with it.” – Parker White
• The IBIT options market has become one of the largest in the world, reflecting the integration of Bitcoin into global finance.
• “The IBIT options market is huge … Bitcoin is no longer a commodity.” – Parker White
• The growth of derivatives has changed market dynamics, emphasizing their role in Bitcoin price volatility.
• The significant drop in the price of Bitcoin on February 5 was probably caused by the depression in the options market on the IBIT platform.
• “There’s been a kind of explosion in the options market that kind of caused it.” – Parker White

The role of hedge funds in market volatility

• It is possible that a non-crypto hedge fund in Hong Kong has influenced the price movement in the crypto market.
• “This led me to believe that it might be a noncrypto wallet … very good at hiding their tracks.” – Parker White
• The use of a separate margin can help prevent losses from affecting other assets within the company.
• “The only reason you do that is to make one limit.” – Parker White
• The Hong Kong-based fund may have been involved in recent market disruptions.
• “There is a lot of evidence that a Hong Kong-based fund is involved.” – Parker White
• Bitcoin’s recent price decline is likely the result of poor trading choices and a significant drop in volatility.
• “Thursday was the culmination of bad choices… – Parker White

Strategy and risk in volatility trading

• Short volatility strategies can generate income from Bitcoin holdings, but they carry risks that can lead to large losses.
• “If you’re trying to make money… you can easily see how someone could exploit this business.” – Parker White
• Volatility in Bitcoin markets may mean reversals, but unexpected events can lead to significant losses for investors using short-term volatility strategies.
• “Vol usually means a pullback … but things just froze and prices kept going down.” – Parker White
• Investment funds sometimes try to hide problems instead of dealing with them, which can lead to catastrophic failure.
• “Instead of just acknowledging the problem … they’re trying to fix it.” – Parker White
• The current market situation may lead to the same catastrophic failure as seen in past events such as the ‘volmageddon’ of 2018.
• “The events reminded me of that situation … it was finally blown up.” – Parker White

Market manipulation and trading strategies

• The behavior of traders in the options market can have a significant impact on the price of Bitcoin, especially during periods of low liquidity.
• “Sellers, they don’t take risks … they need to hedge where they sell.” – Parker White
• The price of Bitcoin was used on weekends and nights due to strategic trading of some firms.
• “Whoever was moving the price over the weekend … sellers would drop $50,000,000.” – Parker White
• Hedge funds often close positions at the end of the year to protect their trading strategies from disclosure.
• “On December 31 they will have to report… they will have closed all their positions.” – Parker White
• Panic in the market led to a large increase in options purchases as currencies reduced risk.
• “The number of properties being bought … people were shocked all over the country.” – Parker White

The importance of the IBIT options market

• The IBIT options market has grown to become the fourth most liquid options market in the world.
• “I didn’t realize the size of the IBIT options market.” – Parker White
• Harvesting Bitcoin volatility is a common way to generate income similar to that used for a single stock.
• “Using or exploiting the volatility of Bitcoin is a very common strategy for making money.” – Parker White
• The liquidity in the IBIT options market is very favorable for traders compared to the small Bitcoin market.
• “It would make sense that a Bitcoiner would move to the IBIT options market.” – Parker White
• High leverage in the options market allows traders to manage significant positions with minimal investment.
• “You can get 100x leverage or more in the options market.” – Parker White

The impact of market dynamics on Bitcoin

• Bitcoin has underperformed the S&P 500 by 49% over the period, which is unusual.
• “That was the period when Bitcoin underperformed the S&P 500 by 49% in 118 days.” – Parker White
• The decline in volatility created an environment where large firms could use cheaper short-term trading options.
• “The powder box was setting up… the options were really cheap.” – Parker White
• The release of Bitcoin from other risky assets shows a unique market situation.
• “You have this release and it’s continued to expand.” – Parker White
• Bitcoin’s four-year halving cycle may end in 2018.
• “I believe it actually ended in 2018.” – Parker White

The impact of macroeconomic factors on Bitcoin

• The pullback in 2022 was a major global pullback rather than a Bitcoin specific event.
• “It was a risk asset like Bitcoin peaked when the Nasdaq was booming.” – Parker White
• The current market dynamics are driven more by the growth of Bitcoin derivatives than by the general factors of supply and demand.
• “It’s a huge increase in Bitcoin output and the huge wallet that comes with it.” – Parker White
• Sophisticated hedge funds use Bitcoin’s volatility to build positions and express opinions on its price movements.
• “A lot of these funds were taking positions … there is a lack of liquidity here.” – Parker White
• The price movement on February 5 was a natural relief of positions rather than a catastrophic event.
• “The 5th of February was a natural relaxation … no bad person exploded.” – Parker White

Structure and performance of crossover funds

• The fund in question works as a crossover fund with both crypto and traditional financial capabilities.
• “It could be a family office or a tradfi-focused fund.” – Parker White
• The fund’s capital is likely to come from experienced crypto traders or OG bitcoiners.
• “People on the other side … maybe from other OG bitcoiners.” – Parker White
• The failure of the fund may not mean the collapse of the entire firm due to the division of the position.
• “The whole point of separating the position … the company itself is safe.” – Parker White
• Keeping the Fund’s affairs brief is important to maintain the confidence and reputation of investors.
• “It’s a matter of life and death to keep this anonymous … no more LP money.” – Parker White

Market behavior and human decision making

• A market is a collection of human decisions rather than a single entity.
• “The market is not something … a collection of people who make decisions.” – Parker White
• Understanding the dynamics of human behavior is essential to explaining market movements.
• Traders often buy out-of-the-money put options because they are considered low risk, despite the high leverage potential.
• “The reason you can buy them cheap is because 99.9% of the time … you’ll never break even.” – Parker White
• The behavior of market participants during periods of volatility can provide insights into trading strategies.
• “The number of properties being bought … people were shocked all over the country.” – Parker White