Bitcoin ETF Options Could Boost Action on Wall Street—And Volatility, Say Analysts

Bitcoin ETFs have already made a multi-billion-dollar splash on Wall Street this year. But analysts say a new wave of institutional interest could roll in as options are added to the mix following recent regulatory approvals.

On Friday, the Securities and Exchange Commission (SEC) approved the listing and trading of options for 11 spot Bitcoin ETFs. With a majority of the products approved in January, the nod came as cumulative net inflows swelled past $20 billion for the group last week.

For products listed on the New York Stock Exchange, the approvals included the Fidelity Wise Origin Bitcoin Fund and Grayscale Bitcoin Trust. On the Cboe, the WisdomTree Bitcoin Fund, the Franklin Bitcoin ETF, and VanEck Bitcoin Trust were among those granted a green light.

From the perspective of institutional players, options on ETFs make it easier, cheaper, and safer for them to participate in the Bitcoin market, Bitwise CIO Matt Hougan told Decrypt. As financial derivatives, options give investors the right to buy or sell an asset at a specific price within a certain time frame.

“Every time Bitcoin tacks on normal things that apply to other assets, it's a win long-term,” Hougan said in a statement. “I mostly consider this another brick in the wall of normalization, and we should be happy about it.”

Even though Bitcoin futures were introduced on the Chicago Mercantile Exchange in 2017, options are distinct. With futures, a contract’s buyer is required to purchase the underlying asset at a certain date, while options give a buyer the right to buy an asset—but not the obligation.

“For institutional investors, being able to take an options view on [Bitcoin] is much more capital efficient, and easier exposure, than a futures-based position,” Bitwise Senior Investment Strategist Juan Leon told Decrypt in an interview.

BlackRock’s spot Bitcoin ETF, with an industry-leading market cap of $26 billion, received a similar treatment to Friday’s group of ETFs late last month. Listed on the Nasdaq, the SEC approved options listing and trading for the product after delaying its decision in March.

Options generally lead to an increase in trading activity, prompting better price discovery alongside more liquidity, Leon said. At the same time, options could lead to greater volatility for Bitcoin’s price on the days that contracts expire, he explained.

“Options are essentially a leveraged position,” Leon said. “When there are large concentrated positions at a specific price and expiration, and those come into expiration, then that may cause liquidation spikes.”

For some experts, the SEC’s approval of options extends beyond just market dynamics. A more efficient Bitcoin market may benefit investors, but it’s also a “exciting signal of regulatory progress,” Grayscale’s Vice President of ETFs Krista Lynch told Decrypt in a statement.

However, Lynch said that the SEC’s approval “does not mean options will start trading immediately,” with other steps still ahead in the regulatory process. Next up, she said the Options Clearing Corporation will engage with the Commodities Futures Trading Commission (CFTC) for further approval.

The step was referenced recently by Bitcoin firm NYDIG, which showed in a research note how the hurdle derailed options for platinum and palladium ETFs in 2010. Still, the firm concluded that Bitcoin’s market would be viewed differently by the CFTC.

“We would expect to see options trading on IBIT,” it wrote, “and potentially the other Bitcoin ETFs as well, by the end of the year.”

Edited by Andrew Hayward