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Bitcoin Developers Launch Open-Source Dev Fund

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Veteran open source Bitcoin developer John Newbery just launched Brink, an independent organization for funding Bitcoin’s open source developer community, a key component driving the global currency and making it work.

Tuesday, Newbery and fellow Bitcoin Optech associate Mike Schmidt unveiled Brink, with prolific Bitcoin technical writer Dave Harding joining the board as independent director. Brink will dole out grants to developers working on Bitcoin projects, as well as help fledgling Bitcoin developers embark with fellowships and mentoring.

Newbery told CoinDesk he launched Brink to “further decentralize Bitcoin development funding” and to onboard and mentor new contributors “which hasn’t been a priority for other funding organizations.”

Investors John Pfeffer and Wences Casares are providing “organization funding,” while the non-profit Human Rights Foundation, Square Crypto, and crypto exchange Gemini are funding the first two fellows; Bitcoin exchange Kraken is funding the first grant.

A huge reason bitcoin works as a global currency at all is that developers are constantly tinkering under the hood to build and test its underlying infrastructure. Traditionally, these developers have done this work out of passion in their spare time without a paycheck.

But things are changing as more and more organizations are looking to pay Bitcoin developers. Last summer alone, at least half a dozen companies in the space announced new grants for developers. 

Brink’s funding model is a bit experimental. For the most part, Bitcoin organizations such as Chaincode and Square Crypto tend to distribute grants directly to developers from their own central funding pools.

Brink’s model is unique in that funding comes from donations from diverse sources. 

There might be companies that want to support Bitcoin development but that don’t want to have to vet developers to fund. Instead, these organizations can donate to Brink, which will vet and train developers. 

Fueling this path, Brink is applying to be the first Bitcoin organization to apply for charitable 501(c)(3) designation in the U.S., so taxpayers can make tax-exempt donations to the developers funded by Brink.  

“We will be the only organization solely devoted to Bitcoin development that takes direct donations from the public in this way,” Brink’s press release explains. 



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What Is Guggenheim Partners? – CoinDesk

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Guggenheim Partners is a privately owned global investment and advisory firm with headquarters in Chicago and New York. 

Originally founded by the Guggenheim family back in the late 19th century, the investment firm currently manages over $295 billion in assets and provides a range of insurance, capital markets, and real estate advisory services. In 2019, the company was the lead counsel during the $34 billion Redhat IBM acquisition – one of the biggest software deals in history.
More recently, Guggenheim Partners has turned its attention to the rapidly expanding digital currency space and voiced particular interest in one crypto asset. 

On Nov. 29, 2020, Guggenheim publicly announced it had filed an amendment with the United States Securities and Exchange Commission (SEC) to enable it to allocate approximately $500 million worth of its Macro Opportunities Fund to Grayscale’s Bitcoin Trust (GBTC). This institutional product allows large financial players to buy and sell shares of a fund that exclusively holds bitcoin in excess of 616,588 coins.

On December 17, 2020, Guggenheim Partners CIO Scott Minerd stated it was the company’s belief “that bitcoin should be worth about $400,000… based on the scarcity and relative valuation such as things like gold as a percentage of GDP” during a Bloomberg TV interview.

A few months later, however, Minerd outlined his short-term concerns for bitcoin’s unsustainable price action during an episode of CNBC’s Closing Bell program. The Guggenheim CIO commented, “I think, for the time being, we probably put in the top for bitcoin for the next year or so. And we’re likely to see a full retracement back toward the 20,000 level.” This sentiment reflected one of his earlier Twitter posts that mentioned bitcoin was becoming vulnerable to a setback and that it was “time to take some money off the table”.





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Large Bitcoin Options Positions May Boost Price Volatility This Week

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Bitcoin’s options market continues to grow along with an institutional-led bull run in the leading cryptocurrency. Yet, while many use options to hedge their positions, the large amounts of bitcoin options slated to expire in a few days may themselves lead to wild price swings as January draws to a close. 

At press time, there are 120,300 contracts worth $4 billion set to expire this Friday on major exchanges Deribit, CME, Bakkt, OKEx, LedgerX, according to data source Skew. Much of that amount can be found on Deribit, the world’s largest crypto options exchange by trading volume. It is on track to register a record monthly bitcoin options expiry of 102,162 contracts (nearly $3.5 billion). 

A call option gives the holder the right but not the obligation to buy the underlying at a predetermined price on or before a specific date; a put option represents a right to sell. An out-of-the-money (OTM) call is the one with the strike price higher than the spot price. As of press time, call options at strike prices above the current spot price of $34,500 are OTM. Meanwhile, put options at strikes below the spot price are OTM as well.

Market makers may inject volatility

Option expiries seldom have a direct impact on the spot price. However, when open interest is concentrated in out-of-the-money (OTM) call and put options, which is the case with bitcoin, a sudden pre-expiry move forces market makers to hedge with the underlying asset. That leads to more significant price turbulence.  

Over 80% of the Deribit-based Jan. 29 expiry open interest is set to expire out-of-the-money, or worthless. Notably, more than 52,600 call option contracts and 29,800 put option contracts are currently OTM, as noted by Swiss-based data provider Laevitas. 

See also: Trading Hall of Fame: The Bitcoin Options Bet That Made $58.2M Profit on Just $638K

“If BTC rapidly jumps to all-time highs within the next few days, it’s expected market makers will aggressively hedge their out-of-the-money short call option exposures, which would likely increase overall market volatility and momentum in the underlying price,” Samneet Chepal, quantitative analyst at the quantitative and systematic digital asset investment firm Ledger Prime, told CoinDesk. 

Market makers are individuals or member firms of an exchange that create liquidity in the market and take the opposite side of the transaction initiated by traders/investors. 

Given the recent strong bullish sentiment and massive buying in higher strike, out-of-the-money call options, market makers across the board are likely to be net short gamma (call sellers), according to Chepal. 

Options gamma is the rate that delta will change based on a $1 change in bitcoin’s price. Delta measures the sensitivity of options prices to the changes in the spot market price. 

Being short gamma means being an option writer (seller) regardless of whether call or put. In this case, market makers are short gamma due to call selling. That makes them vulnerable to a sudden move to the higher side. 

Therefore, if bitcoin rallies while heading into Friday’s expiry, the market makers may aggressively hedge their OTM short call exposure by taking a long position in the spot market, leading to heightened price volatility and stronger bull momentum.  

The market makers will likely spring into action if bitcoin jumps to all-time highs above $42,000 ahead of Friday, as most open interest is concentrated in higher strike price calls. “A massive chunk of open interest is in deeper OTM call strikes above $44,000,” Chepal said.

Bitcoin options open interest on Deribit
Source: Deribit

Data provided by analytics platform Genesis Volatility shows the largest concentration of open interest is in the $52,000 call. 

Delta hedging

“In an attempt to protect against an out-of-the-money result, options traders may likely resort to delta hedging strategies,” Sui Chung, CEO of CF Benchmarks, told CoinDesk. 

Delta hedging, or delta-neutral, comprises multiple positions (long and shorts, call/puts) aimed at reducing, hedging the directional risk associated with price movements in the underlying asset. 

For instance, the delta of the $40,000 call expiring on Jan. 29 is currently 0.10. That means the option’s price will change by $0.10 for every $1 change in bitcoin’s price. 

See also: Bitcoin Bounces as Options Market Sees 20% Chance of $50K at Month’s End

Another way to look at it is that investors currently holding a long call position with a strike at $40,000 have a BTC 0.10 delta exposure. To hedge against the exposure, traders can short sell BTC 0.10 in the spot or futures market or else buy a put option with a 0.10 delta. 

Option traders generally hedge delta with options. However, in particularly fraught times they could also resort to hedging with the underlying asset itself, leading to heightened price volatility, according to Chung. 

“This can create a vicious cycle, with increased volatility leading to even more derivatives traders rushing to the same hedging strategies, which ends up having the same effect as pouring oil on an open fire,” Chung said. 

Bitcoin is currently trading near $34,100, having put in lows below $29,000 last week, according to CoinDesk 20 data. As long as these options remain open in the market, the next couple of days could be interesting – and perhaps volatile – for bitcoin. 





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The Bitcoin Whales Won’t Stop Buying

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According to a number of different data points, bitcoin whales saw last week’s volatility and price declines as a chance to accumulate.

This episode is sponsored by Nexo.io.

Today’s grab-bag episode looks at five different topics:

  • Bitcoin whales kept accumulating during last week’s dip
  • Jim Cramer advises Powerball winner to put 5% in bitcoin
  • Previewing the first FOMC meeting of the Biden Administration
  • Earnings week on Wall Street looks good for Big Tech
  • An insider’s look at the state of crypto venture capital

Image credit: munandme/Getty Images Plus



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