"I'm assuming others will be approved in short order," Bloomberg's senior ETF analyst Eric Balchunas said in a post on X. "Huge win for the bitcoin ETFs.”

So, how will the approval impact the world’s largest cryptocurrency?

ETF Store President Nate Geraci expects a “flurry” of new filings once options trading begins. “Bitcoin buffer or defined outcome ETFs. Bitcoin premium income or yield max (covered call) ETFs. Bitcoin tail risk ETFs. Bitcoin convexity ETFs. All of it,” he said in a post on X.

Meanwhile, Balchunas said it will attract more liquidity, which will, in turn, “attract more big fish.”

Retail traders typically use options for speculation, while larger institutions use options as a hedge. Bitcoin has a massive retail following, which means it is likely there will be more speculation in bitcoin ETF options when compared to ETF options on equities, according to market structure analyst Dennis Dick.

“Counter to common opinion, options actually reduce volatility,” Dick told The Block in an email. “As open interest rises, it creates natural buyers and sellers on both sides of the market… This thickens up the market and increases liquidity, which therefore reduces volatility.”

Because of this, Dick expects the volatility of the ETF’s underlying asset — in this case, bitcoin — to be reduced as more interest comes into trading the options on the bitcoin ETFs.

Prime brokers offering margin lending in USD against bitcoin collateral significantly increase the supply of cash within the crypto market, said Arbelos Markets co-founder Joshua Lim. This influx of capital would likely flow into riskier areas of the ecosystem, driving investment from spot bitcoin ETFs into alternative assets like memecoins and NFTs.

“Options markets on IBIT (and market-maker willingness to bear the risk) will make it easier to price the risk inherent in margin lending against IBIT and make it more likely for prime brokers to lend against crypto… there will be an altcoin boom,” Lim said in a thread on X.

Bitcoin's notional value will be "fractionally banked" through ETF options, said Jeff Park, head of alpha strategies at Bitwise. Unlike traditional equities, bitcoin cannot be diluted, creating unique volatility dynamics that amplify gains as prices rise, particularly during a gamma squeeze, according to Park.

“[T]he Bitcoin ETF options market is the first time the financial world will see regulated leverage on a perpetual commodity that is truly supply-constrained,” Park said. “Things will likely get wild. In such scenarios, regulated markets may shut down. But the remarkable thing about Bitcoin is that there will always be a parallel, decentralized market that can’t be shut down, unlike GME—which, as you can imagine, will add even more fuel to the fire.”

It’s that scenario Park described that bothers some in the market.

“My opinion is that the spot bitcoin ETF should never have been approved in the first place since bitcoin is not regulated and susceptible to price manipulation schemes like wash trading,” Joe Saluzzi told The Block. “The SEC made a big mistake when they approved the Bitcoin futures ETF. By doing so, they set a precedent and had little choice but to approve the spot bitcoin ETF. Now they find themselves in a predicament since they would have had a tough time defending a decision to not allow options on an approved ETF."

Saluzzi co-founded Themis Trading, an independent agency brokerage firm that trades equities for institutional money managers and hedge funds.

“I do think it's kind of ironic that bitcoin started as a decentralized finance concept and is now being largely influenced by the traditional Wall Street firms,” he said. “Somehow, I don’t think Satoshi Nakamoto would approve of this.”

Better Markets Director of Securities Policy Benjamin Schiffrin said the availability of options on spot bitcoin ETFs “could leave a trail of destruction in its wake.”

Schiffrin pointed to recent price drops in the price of bitcoin, particularly its 15% selloff in early August.

“Although options trading on spot bitcoin ETPs will inevitably be marketed to retail investors, options trades are typically unsuitable for retail investors even in the case of traditional securities such as stocks,” he said. “Indeed, options trading, at least for retail investors, is essentially gambling.”

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