A report by CryptoQuant analyzes the pros and cons of Bitcoin ETF options trading, calling it a “significant milestone.” Thus, increased liquidity and institutional investors are positive signs for Bitcoin.

Trading IBIT options could also open the door to increased Bitcoin short selling, but the benefits far outweigh this risk.

Bitcoin ETF Options: An Institutional Milestone

Ever since the SEC approved options trading on BlackRock’s IBIT ETF in late September, a new possibility for a dramatic change in the market has emerged. This regulatory green light has been anticipated for several months, and the SEC even appears open to a similar arrangement for Ethereum ETFs. An exclusive report from CryptoQuant may help explain the opportunity.

CryptoQuant called the SEC approval a “significant milestone” and highlighted a number of benefits for the market. For one, it’s powerful even if it’s considered a symbolic victory. Open interest for Bitcoin options trading increased nearly fivefold from March 2023 until the ETF approval a year later, and options trading on IBIT opens up a versatile new market.

“The decision highlights the increasing integration of cryptocurrency into traditional financial markets, following a growing trend of regulatory acceptance of Bitcoin-related financial products. Approval would increase liquidity and investor participation in the Bitcoin market, marking a further step towards broader institutional adoption,” CryptoQuant said.

Read more: What is a Bitcoin ETF? – Everything you need to know

Open Interest in Bitcoin after ETF. Source: CryptoQuant

CryptoQuant’s report therefore focuses primarily on the tangible benefits of the approvals, rather than the symbolic ones. For example, its data states that options traders tend to take a longer-term view of their investment choices than futures traders. In the existing Bitcoin options market, nearly half of all options have an expiration date of five months or more, compared to the majority of futures trades that expire in less than three.

Liquidity and financial instruments

The new options trading will also diversify traders’ financial instruments, helping to increase liquidity in the markets overall. This reflects Eric Balchunas’s sentiment that these IBIT options will attract more liquidity and more large traders. A prominent example of these new tools is the ability to sell covered calls.

“Investors who hold spot Bitcoin can sell call options and collect the call option premium, earning income from their Bitcoin investments in a regulated manner,” the report said.

Read more: Bitcoin Price Prediction 2024/2025/2030

Bitcoin Shorting Open Interest in 2022. Source: CryptoQuant

However, these options will also likely increase the “paper” supply of Bitcoin. Increasingly sophisticated methods of exposure to Bitcoin that do not involve trading Bitcoin may not always be a good thing. In the past, this increase in paper supply has actually led to aggressive betting on Bitcoin falling, a bearish signal.

The article Bitcoin ETF Options Could Attract More Liquidity and Institutional Investors appeared first on BeInCrypto Brasil.