SEC approved options based on Bitcoin-ETF. How will this end for the cryptocurrency market?
ETFs based on Bitcoin have already set quite a few records in the whole niche of exchange-traded funds, which means that investors clearly liked the new instruments based on the main cryptocurrency. However, the development of the sphere will not end here. According to analysts, another wave of demand for such products may emerge within the traditional financial system, and this time the trigger for it will be the approval of options based on exchange-traded funds.
At the end of Tuesday, spot Bitcoin-ETFs in the US recorded a net outflow of $79.1 million. Thus, the series of seven consecutive days of capital inflows was broken.
Capital inflows and outflows from spot Bitcoin-ETFs in the US
At the same time, as of today, the total net capital inflow into such instruments since their launch exceeds the level of $21 billion. And this figure takes into account the withdrawal of 20 billion from Grayscale’s GBTC exchange-traded fund.
Total net capital inflows into spot Bitcoin-ETFs in the U.S.
And now investors will have the novelty of access to the world of cryptocurrencies – albeit indirectly.
Who’s buying cryptocurrencies
On Friday, the US Securities and Exchange Commission (SEC) approved options trading for eleven spot Bitcoin-ETFs. These are spot exchange traded funds that began trading on US exchanges back in January 2024.
Their launch was one of the most successful in the history of the entire US stock market, both in terms of the amount of attention from niche representatives and in the context of actual capital inflows.
Approval of spot cryptocurrency ETFs in the United States
In particular, Fidelity Wise Origin Bitcoin Fund and Grayscale Bitcoin Trust were approved among the instruments registered on the New York Stock Exchange. On the CBOE, WisdomTree Bitcoin Fund, Franklin Bitcoin ETF and VanEck Bitcoin Trust have been approved.
From the perspective of institutional players, options on ETFs make it easier, cheaper and safer for them to participate in the market, Bitwise Chief Investment Officer Matt Hogan told Decrypt.
Still, options are derivatives that give investors the right to buy or sell an asset at a certain price within a certain period of time. And that’s important for the digital asset industry, says the expert – here’s his rejoinder.
Every time a new “chip” familiar to institutionalised investors emerges based on Bitcoin, it’s a win in the long run. I see this as another brick in the wall of cryptocurrency normalisation, something we should be happy about.
Previously, analysts have noted that launching something like this will make cryptocurrencies more accessible to market participants. Still, they will be able to use instruments they understand based on digital currencies, which continue to be a relatively new asset class.
A four-hour chart of the Bitcoin exchange rate on the Binance exchange
And while Bitcoin futures were introduced to the Chicago Mercantile Exchange back in 2017, options are different from them. With futures, the buyer of the contract is obligated to purchase the underlying asset on a specific date, while options give the buyer the right to buy the asset – but not the obligation.
Thus ETF-based options will be another convenient lever to manage one’s capital, said Juan Leon, senior investment strategist at Bitwise. Here’s his comment.
For institutional investors, the ability to use Bitcoin options is much more capital efficient and easier to handle than futures-based positions.
The amount of capital under management in different ETFs
According to Leon, options typically lead to increased trading activity, promoting better price formation and liquidity.
At the same time, options are able to lead to increased volatility in the Bitcoin price on contract expiration days. That is, the cost of the first cryptocurrency will get the conditions for sharp changes, the expert believes.
Options are essentially a leveraged position. When there are large concentrated positions at a certain price and time frame, and they come to expiration, it can cause spikes in liquidations.
It's important to note that in the cryptocurrency industry, liquidations of trading positions by traders who use leveraged exchanges happen on a regular basis. For example, in the last 24 hours, their volume totalled $138 million, most of which came from long positions whose owners were betting on market growth.
In periods of sharp growth or collapse of the industry this indicator can exceed a billion dollars. The last time this happened was on 5 August, when BTC fell to $49,000.
The volume of liquidations of cryptocurrency traders’ positions over the last day
According to some experts, the SEC’s approval of options goes beyond just market dynamics. A more efficient market is able to benefit investors, but it is also “an exciting signal of regulatory progress.” This is the opinion shared by Grayscale’s vice president of ETFs, Krista Lynch.
She also noted that the SEC approval “does not mean that options will start trading immediately,” as there are other steps still indicated in the regulatory process. Next, the Options Clearing Corporation will work with the Commodity Futures Trading Commission (CFTC) for further approval, she said.
Overall, the launch of Bitcoin-ETF-based options will be a positive development for the market. Firstly, these instruments will allow investors to get in touch with cryptocurrency derivatives. Second, the influx of capital will improve the already good liquidity of the market.
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