Bitcoin (BTC) reached a record high price on Tuesday as Wall Street launched its latest product, an initiative that could enhance the popularity of this cryptocurrency in the financial sector: trading Bitcoin spot ETF options.
BTC price surged to a new all-time high of $94,040 before retreating to around $92,000 but still increased more than 2% on the day.
Bitcoin price peaks above $94,000 | Source: Coingecko
Options allow investors to buy or sell an asset at a specific price at a predetermined time. While CME has provided Bitcoin options, Bitcoin spot ETF options represent a significant advancement for both retail investors and financial institutions, according to Noelle Acheson, former market analysis director at Genesis.
"A deeper domestic derivatives market will promote the development and sophistication of the market, strengthen investor confidence, attract new participants, and open up more diverse investment and trading strategies."
"Institutions will be attracted by higher flexibility and the ability to trade in large volumes. Options provide the ability to express more detailed investment views and can enhance trading at lower costs, making them appealing to large investors."
So far, only one of the eleven spot Bitcoin ETFs in the U.S., BlackRock's IBIT, offers trading options and demand remains very high.
Starting on November 19 at Nasdaq, IBIT options recorded trading volume of over $446 million in the first hour of trading.
"There have been several hundred million options contracts on IBIT (with massive trading volume on the very first day)," said Bloomberg ETF analyst Eric Balchunas, noting that the majority of current options contracts are call contracts, indicating that investors are betting on the potential for Bitcoin prices to continue rising.
Jeffrey Park, Alpha Strategy Director at Bitwise, stated that Bitcoin continues to receive special treatment in trading. He pointed out that IBIT only has 25,000 approved options contracts, which represents approximately 0.5% of the total ETF shares.
The options contract limit is a regulation on the number of contracts that can be held on one side of the market, and this limit varies for each ETF, depending on the number of outstanding shares and trading volume.
Theo Park, IBIT needs to meet the necessary conditions to hold 400,000 options contracts, equivalent to 7% of the outstanding shares. He compares IBIT's limit with the limit of only 2,000 contracts of the Bitcoin futures at CME, equivalent to 175,000 contracts if applied to IBIT.
"While I am very excited to witness significant advancements, especially in 2024, it is hard to overlook the special treatment that Bitcoin continues to receive. I look forward to a day when Bitcoin becomes mainstream and is accepted as part of the global financial system."
He also explained that the limit of 25,000 contracts could create "unusual market dynamics" and recommended that retail traders study potential arbitrage trading opportunities that could arise from Bitcoin ETF options.