#bitcoin☀️ ETFs have already attracted billions of dollars on Wall Street this year. However, analysts suggest that a new wave of institutional interest may arise as options are introduced to these products following recent regulatory approvals.
On Friday, the Securities and Exchange Commission (SEC) approved the listing and trading of options on 11 spot bitcoin ETFs. Most of these products were approved in January, with their cumulative net inflows surpassing $20 billion last week.
Approval of Bitcoin ETF Options
Among the products listed on the New York Stock Exchange (NYSE) are the Fidelity Wise Origin Bitcoin Fund and Grayscale Bitcoin Trust. On Cboe, approved funds include WisdomTree Bitcoin Fund, Franklin Bitcoin ETF, and VanEck Bitcoin Trust.
According to Matt Hougan, Chief Information Officer at Bitwise, options allow institutional players easier, cheaper, and more efficient access to the bitcoin market. Options, as financial derivatives, give investors the right to buy or sell an asset at a specific price within a given timeframe.
"Every step that brings bitcoin closer to functioning like traditional assets is a long-term win," Hougan said. "This is just another brick in the wall of bitcoin normalization, and we should be happy about that."
Difference Between Futures and Options
Although bitcoin futures were introduced on the Chicago Mercantile Exchange (CME) in 2017, options offer different possibilities. While futures require the buyer to purchase the underlying asset at a specified date, options give buyers the right, but not the obligation, to buy the asset.
Juan Leon, Senior Investment Strategist at Bitwise, said that options are a more capital-efficient and simpler way for institutional investors to gain exposure to bitcoin than futures-based positions.
Impact of Options on Liquidity and Volatility
BlackRock's spot #BitcoinETF💰💰💰 , with a market capitalization of $26 billion, received similar SEC approval for options at the end of last month. Generally, options lead to increased trading activity, which contributes to better price discovery and increased liquidity.
However, options could also lead to higher volatility, particularly when contracts expire. Leon explained that large concentrated positions at certain price points during expiration could cause liquidation spikes and increased volatility.
Regulatory Steps and Progress
The approval of options by the SEC is not just about market dynamics, but also a significant indicator of regulatory progress, according to Krista Lynch from Grayscale. However, Lynch pointed out that SEC approval does not mean that options will start trading immediately, as there are additional regulatory steps to follow.
One such step is the involvement of the Options Clearing Corporation and further approval from the Commodities Futures Trading Commission (CFTC).
Expectations by Year-End
Bitcoin firm NYDIG recently stated that options trading on bitcoin ETFs, including IBIT, should begin by the end of the year. NYDIG also acknowledged that regulatory processes could take longer but expects the CFTC to view the bitcoin market differently than other asset markets, such as platinum or palladium, where options for ETFs faced issues in 2010.
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