Bitcoin Volatility Will Increase After SEC Approves Options on Spot Bitcoin ETFs: Analyst Reveals
The US Securities and Exchange Commission (SEC) has approved the listing and trading of options on bitcoin exchange-traded funds (ETFs) such as BlackRock's iShares Bitcoin Trust (IBIT). Analysts say this move will make Bitcoin's price more volatile. With options available on these ETFs, investors can easily bet on Bitcoin's future price changes. This can cause big changes in the price.
Retailers increase flexibility; Institutions can be stabilized later.
Analysts predict that the introduction of options on bitcoin ETFs, such as BlackRock's iShares Bitcoin Trust (IBIT), will increase volatility in the asset.
On Friday, the US Securities and Exchange Commission (SEC) approved NYSE American LLC and Cboe Exchange, Inc. to list and options exchange-traded funds on multiple platforms.
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According to Kbit CEO Ed Tolson, U.S. retailers who currently do not have access to the perpetual swaps market may turn to IBIT options to access the asymmetric fee structure, filling a market gap for these investors.
Tolson points out that retail speculation may be a major use case for IBIT options. He explained that institutional market makers who are expected to take the opposite side of these trades may be short gammas. This means they may need to buy when the price rises and sell when it falls, which can increase volatility.
Michael Harvey, head of franchise trading at Galaxy Digital, predicts volatility will increase in the short term. Initially, he said, he expects retailers to have higher numbers than institutions, which will increase volatility. Over time, as institutions use profit-generation strategies, such as selling swaps, this may dilute the overall volatility seen today.
Michael emphasized that the regulated nature of US-based spot Bitcoin ETF options could appeal to institutional investors who are curious about cryptocurrencies but have yet to enter the market. This development will give institutions a new way of exposure to Bitcoin, which could lead to a deeper international market for Bitcoin alternatives.
SEC Caps options positions with 25,000 contracts
SEC approval includes strict position and exercise limits, positions on 25,000 contracts. This conservative cap, significantly lower than the 250,000 contract limits seen with other ETFs, is intended to reduce the risk of market manipulation and ensure a more regulated trading environment.
Analysts everywhere are closely monitoring how the proliferation of options traded on Bitcoin ETFs will affect Bitcoin's overall synthetic notional value and its role in the global financial system. Michael explained that in other commodity markets, notional values of options exceed physical supply, which can lead to negative price behavior. However, he does not expect long-term price fluctuations in Bitcoin.
As Bitcoin continues its Uptober trend, there is a sharp increase in ETF volume. Last week, Bitcoin ETFs saw net inflows of $2 billion—the third largest in history—led by BlackRock's IBIT ETF with $1 billion, followed by Fidelity's FBTC ETF with $319 million. According to data from Soso Value, the Ethereum spot ETF attracted $79 million.
