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

Coin World reports:
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 flow 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 exceeding $20 billion last week.
Approved listings on the New York Stock Exchange include the Fidelity Wise Origin Bitcoin Fund and the Grayscale Bitcoin Trust. On Cboe, the WisdomTree Bitcoin Fund, Franklin Bitcoin ETF, and VanEck Bitcoin Trust also received the green light.
Matt Hougan, Chief Investment Officer at Bitwise, stated that from the perspective of institutional participants, options on ETFs make it easier, cheaper, and safer for them to participate in the Bitcoin market. As financial derivatives, options grant investors the right to buy or sell assets at a specific price within a certain period of time.
Hougan said in a statement, “Whenever Bitcoin breaks the norm for 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. For futures, the buyers of contracts are required to purchase the underlying assets on a certain date, while options give the buyer the right but not the obligation to buy the assets.
Juan Leon, Senior Investment Strategist at Bitwise, said 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 than being based on futures positions.”
The spot Bitcoin ETF by BlackRock, which has an industry-leading market value of $26 billion, received a similar treatment as the ETF group last month. The decision on listing and trading options on NASDAQ and approved by the SEC has been postponed until March.
Leon said that options usually lead to increased trading activity, promoting better price discovery and more liquidity. He explained that at the same time, options may result in greater volatility in Bitcoin prices on the expiration date of the contracts.
“Options are essentially leveraged positions,” Leon said. “When there are large concentrations of positions at specific prices and expiration dates, it may lead to a surge in settlement.”
For some experts, the SEC’s approval of options goes beyond market dynamics. Krista Lynch, Deputy Head of ETFs at Grayscale, stated that a more efficient Bitcoin market could benefit investors, but it is also an “exciting signal of regulatory progress.”
However, Lynch stated that the SEC’s approval “does not mean that options will start trading immediately,” as there are other steps in the regulatory process.
Next, she said the options clearing firm will proceed with further approval from the Commodity Futures Trading Commission (CFTC).
Bitcoin firm NYDIG recently cited this step, explaining how this hurdle caused options for platinum and palladium ETFs to go off track 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 possibly additional Bitcoin ETFs.”
Editor:
Andrew Hayward