Analyst suggests that Bitcoin ETF options may boost activity and volatility on Wall Street

Bitcoin
This year, ETFs have caused a sensation on Wall Street, attracting billions of dollars. However, analysts say that with recent regulatory approvals, a new wave of institutional interest may come flooding in.
On Friday, the U.S. Securities and Exchange Commission (SEC) approved the listing and trading of options for 11 physically-backed Bitcoin ETFs. This approval comes as a result of cumulative net inflows surpassing $20 billion last week, with most products having obtained approval in January.
Among the listings on the New York Stock Exchange are Fidelity’s Wise Origin Bitcoin Fund and Grayscale Bitcoin Trust. On Cboe, WisdomTree Bitcoin Fund, Franklin Bitcoin ETF, and VanEck Bitcoin Trust Fund have also been given the green light.
According to Matt Hougan, Chief Investment Officer at Bitwise, options on ETFs make it easier, cheaper, and safer for institutional participants to engage in the Bitcoin market. Options, as financial derivatives, grant investors the right to buy or sell assets at a specific price within a certain time frame.
Hougan stated in a statement, “Whenever Bitcoin breaks through the normalcy applicable to other assets, it’s a long-term victory. I primarily see this as another brick in the normalization process, and we should be happy about it.”
Although Bitcoin futures were launched on the Chicago Mercantile Exchange in 2017, the choice is different. With futures, the buyer of the contract is obligated to purchase the underlying asset on a certain date, whereas options grant the buyer the right, but not the obligation, to purchase the asset.
Juan Leon, Senior Investment Strategist at Bitwise, mentioned in an interview, “For institutional investors, being able to take a view on Bitcoin through options is more capital-efficient and easier to expose to risks compared to a futures-based position.”
BlackRock’s physically-backed Bitcoin ETF, with an industry-leading market capitalization of $26 billion, received a similar treatment as the ETF group last Friday. The decision on whether to list and trade approved options products on Nasdaq and the SEC has been delayed until March.
Leon stated that options typically lead to increased trading activity, promoting better price discovery and more liquidity. He explained that at the same time, options may result in greater price volatility when contracts expire due to a concentration of positions at specific prices and dates.
Leon said, “Options are essentially a leveraged position. When there is a significant concentration of positions at specific prices and dates, the expiration of these positions can lead to a surge in settlements.”
For some experts, the SEC’s approval of options extends beyond market dynamics. Krista Lynch, Vice President responsible for ETFs at Grayscale, stated in a statement that a more efficient Bitcoin market could benefit investors, but it is also an “exciting signal of regulatory progress.”
However, Lynch mentioned that the SEC’s approval “does not mean that options will begin trading immediately,” as there are other steps in the regulatory process.
Next, she said the options clearing firms will seek further approval from the Commodity Futures Trading Commission (CFTC).
NYDIG, a Bitcoin company, recently cited this step, illustrating in a research note how this obstacle led to a disconnection of options for platinum and palladium ETFs in 2010. Nevertheless, the company concluded that the CFTC’s view of the Bitcoin market may be different.
“We anticipate options trading on IBIT by the end of this year,” it wrote, “and potentially other Bitcoin ETFs as well.”
Editor
Andrew Hayward