The U.S. Securities and Exchange Commission (SEC) has approved the listing and trading of options on spot Bitcoin exchange-traded funds (ETFs) such as BlackRock’s iShares Bitcoin Trust (IBIT). Analysts say this move is likely to make Bitcoin’s price more volatile. With the options available on these ETFs, investors can more easily bet on Bitcoin’s future price changes. This could lead to greater fluctuations in its value.
Retailers increase volatility; Settings can stabilize later
Analysts predict that introducing options on spot Bitcoin ETFs such as BlackRock’s iShares Bitcoin Trust (IBIT) will lead to greater volatility in the underlying asset.
On Friday, the U.S. Securities and Exchange Commission (SEC) named NYSE American LLC and Cboe Exchange, Inc. approved to list and trade options on multiple Bitcoin exchange traded funds.
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Kbit CEO Ed Tolson said US retail traders who currently do not have access to perpetual swap markets could now turn to IBIT options to achieve an asymmetric payout structure, filling a market gap for these investors.
Tolson indicated that retail speculation will likely be the main use case for IBIT options. He explained that institutional market makers, who are expected to take the opposite side of these trades, will likely have a short range. This means they may have to buy when the price rises and sell when the price falls, potentially amplifying volatility.
Michael Harvey, head of franchise trading at Galaxy Digital, also expects greater volatility in the short term. He noted that they expect that initially the number of retail traders will exceed the number of institutions, which could increase volatility. Over time, if institutions adopt return-generating strategies such as sell-off volatility, this could dampen the overall volatility we see today.
Michael emphasized that the regulated nature of US-based spot Bitcoin ETF options will likely attract institutional investors who are curious about cryptocurrencies but have yet to enter the market. He noted that this development offers institutions a new way to gain exposure to Bitcoin, which could lead to a deeper global Bitcoin options market.
SEC Caps option positions at 25,000 contracts
The SEC’s approval includes strict position and exercise limits, limiting positions to 25,000 contracts. This conservative limit, significantly lower than the 250,000 contract limits imposed by other ETFs, is designed to reduce the risk of market manipulation and ensure a more controlled trading environment.
Analysts are closely watching how the expansion of options trading on spot Bitcoin ETFs will impact Bitcoin’s overall synthetic notional value and its role in the global financial system. Michael explained that in other commodity markets, the notional values of options are often greater than the physical supply, which can lead to erratic price behavior. However, he does not expect any long-term price distortion for Bitcoin.
As Bitcoin continues its Uptober trend, there is a record increase in ETF volume. Last week, Bitcoin ETFs saw net inflows of $2 billion – the third largest in history – with BlackRock’s IBIT ETF leading the way with $1 billion and Fidelity’s FBTC ETF following with $319 million. Ethereum also gained, with its spot ETF raising $79 million, according to data from SoSo Value.
Credit : coinpedia.org
