The launch of spot Bitcoin exchange traded fund (ETF) options in the United States will bring about a revolution in Bitcoin and financial markets, industry experts say. It ‘opens the flood gates for Bitcoin’s next evolution’, said Joe Consorti, head of growth of BTC custody firm Theya.
With the Bitcoin ETF options starting to trade today, November 19, the first BTC ETF (IBIT) options from Black Rock iShares began trading, with help of the Options Clearing Corporation (OCC). These options will be traded and listed by Nasdaq, said Alison Hennessy, head of Nasdaq’s ETP listings, providing both retail and institutional investors a brand new way to trade ETPs.
Bitcoin’s Market Dynamics Transform with Derivatives
The ability of investors to commit to buying or selling ETF shares at set prices before expiration (called spot ETF options) introduces bidquotes, price discovery and risk management. Eric Balchunas, a senior ETF analyst at Bloomberg, said the launch was a ‘big deal’ and that it could draw a lot of institutional interest.
Consorti explained how Bitcoin’s market dynamics have seen a transformation. “Derivatives as the backbone of capital markets, are driving liquidity and institutional adoption,” he said. While traditional markets have derivatives that are 10 to 20 times the size of underlying market cap, BTC derivatives are currently only 1% of its $1.8 trillion market cap, he noted before adding:
“Listing options on Bitcoin ETFs brings BTC into the largest capital market in the world, and unlocks unprecedented opportunities because of this, namely liquidity in depth.”
But he said that market maturity is held back by the underdevelopment of BTC derivatives, even as the nascent protocol sees growing institutional demand for hedging and allocation tools. Offshore or over-the-counter (OTC), most of BTC derivatives trading happens, excluding many U.S. investors.
The introduction of ETF options will open the doors to the derivatives market by allowing U.S. investors to join in with ETFs. Consorti thinks Bitcoin’s time could be similar to that of stock or commodity markets, where derivatives dwarf spot markets. “This should create trillions of dollars of back-end liquidity, deeper pools and wider participation by the retail and the institutional,” he said.
