Bitcoin (BTC) hit a record high on Tuesday as Wall Street launched its latest product, an initiative that could boost the cryptocurrency's popularity in the financial world: spot trading of Bitcoin ETF options.
BTC price spiked to a new all-time high of $94,040 before retreating to the $92,000 region but is still up over 2% on the day.
Bitcoin price hits new high above $94,000 | Source: Coingecko
Options allow investors to buy or sell an asset at a certain price at a predetermined time. While CME already offers Bitcoin options, spot Bitcoin ETF options are a big step forward for both retail investors and financial institutions, said Noelle Acheson, former chief market analyst at Genesis.
“A deeper domestic derivatives market will promote market development and sophistication, strengthen investor confidence and attract new audiences, while opening up a wider variety of investment and trading strategies.”
“Institutions will be attracted to the greater flexibility and ability to trade in large volumes. Options offer the ability to express a more detailed investment view and can enhance trading at lower costs, making them attractive to large investors.”
To date, only one of the eleven US-based Bitcoin ETFs, BlackRock's IBIT, offers trading options, and demand remains strong.
Launched on November 19 on Nasdaq, IBIT options recorded more than $446 million in trading volume in the first hour of trading.
“There were several hundred million options contracts on IBIT (with huge volume on the first day),” Bloomberg ETF analyst Eric Balchunas said, noting that the majority of the current options contracts are call contracts, indicating that investors are betting on the possibility of Bitcoin prices continuing to rise.
Jeffrey Park, Director of Alpha Strategy at Bitwise, noted that Bitcoin continues to receive special treatment in trading. He pointed out that IBIT only has 25,000 approved options contracts, a limit that represents only about 0.5% of the total ETF holdings.
The option contract limit is a rule on the number of contracts that can be held on the same side of the market, and this limit varies from ETF to ETF, depending on the number of shares outstanding and trading volume.
According to Park, IBIT would need to qualify to hold 400,000 options contracts, which is equivalent to 7% of the outstanding shares. He compared IBIT's limit to the CME's Bitcoin futures limit of just 2,000 contracts, which would be equivalent to 175,000 contracts if applied to IBIT.
“While I am excited to see the incredible progress, especially in 2024, it is hard to ignore the special treatment that Bitcoin continues to receive. I look forward to the day when Bitcoin becomes mainstream and accepted as part of the global financial system.”
He also explained that the 25,000 contract limit could create “unusual market dynamics” and recommended that retail traders research arbitrage opportunities that could arise from Bitcoin ETF options.
