Nasdaq’s recent application to list and trade Bitcoin options is more proof that investors want exposure to the cryptocurrency.
And more choice is coming for retail customers after the successful rollout of crypto spot exchange-traded funds in the US.
A wide range of investors, from institutions down to “your auntie who has a Charles Schwab account” want exposure to Bitcoin, CF Benchmarks CEO Sui Chung told DL News.
“The ETFs have shown that everyone on the investing spectrum is interested.”
CF Benchmarks is a digital asset index provider owned by crypto exchange operator Kraken. It has partnered with Nasdaq on the listed options offering.
Nasdaq asked the Securities and Exchange Commission last week to approve its XBTX listed options.
If given the nod by the regulator, the options will track CF Benchmarks’ real-time index.
Also, the options’ final settlement value will be determined by CF Benchmarks’ CME CF Bitcoin Reference Rate, which provides a US dollar price calculated at the end of the New York trading day.
A listed option allows an investor to buy or sell an asset at a specified price within a certain timeframe. Once approved, Nasdaq’s spot Bitcoin options could be used by institutional investors as a cost-effective way of speculating on the price of Bitcoin, Chung said.
But they could also be used for hedging institutions’ long exposure to the spot ETFs.
Six of the 11 spot Bitcoin ETFs approved calculate their value using Chung’s BRRNY, and hedging with options benchmarked at the same price creates an efficient risk offset, Chung said.
Nasdaq’s spot options will also open up opportunities for retail investors, Chung said.
“ETFs plus spot options will give individual investors the ability to do the same sorts of things as more sophisticated investors and institutions do today with ETFs futures and options on the CME,” he said.
The derivatives are cash-settled — that is, exchanged for dollars — and investors don’t need a futures position to open the options contract, Chung said.
“Hence, they’re more individual investor friendly,” he said.
If approved, Nasdaq’s options will be the first crypto derivatives to be cleared by the Options Clearing Corporation, Chung said.
The OCC is the clearing house that processes all spot options transactions in the US.
That’s significant, Chung said, as it’s a sign of Bitcoin’s popularisation and acceptance into the traditional markets.
He said the application was of a piece with the news earlier this month that investment bank Morgan Stanley will allow its financial advisors to offer Bitcoin ETFs to certain clients.
“You’re seeing these key pieces of financial infrastructure in the US begin to accept Bitcoin as one of the many things they deal with,” Chung said.
Investors want exposure to Bitcoin for a wide range of reasons, so Wall Street is looking at the asset class more closely.
“When you look at it seriously, you evaluate the liquidity, you evaluate the infrastructure around the markets, and you conclude that, ‘Hey, this is no different from other assets,’” he said.
The SEC has 240 days to approve Nasdaq’s application.
Reach out to the author at joanna@dlnews.com.
