The imminent approval of options trading for spot Bitcoin ETFs such as BlackRock’s iShares Bitcoin Trust (IBIT) is expected to increase volatility in the cryptocurrency market, according to industry analysts.
On Friday, the U.S. Securities and Exchange Commission (SEC) granted permission to NYSE American LLC and Cboe Exchange, Inc. to list and trade options on several spot Bitcoin ETFs.
Analysts believe that this development will open up new opportunities, especially for US-based retail investors who previously did not have access to continuous exchange markets. Kbit CEO Ed Tolson stated that the availability of options on Bitcoin ETFs fills a gap in the market and allows individual investors to take on risk with an asymmetric payout structure.
“Individual speculation is likely to be the primary use case for IBIT options,” Tolson said. Institutional market makers, who are expected to be on the opposite side of individual trades, may need to buy as prices rise and sell as prices fall, potentially increasing Bitcoin’s volatility, he added.
Galaxy Digital Franchise Trading Head Michael Harvey also predicted an increase in near-term volatility. He predicts that retail investors will initially dominate the market and contribute to price swings, but institutional participation will eventually reduce volatility as they adopt yield-seeking strategies such as volatility selling.
Harvey also noted that regulated Bitcoin ETF options would appeal to institutional investors who are “crypto-savvy” but have not yet entered the market directly.
As options trading expands in the Bitcoin ETF space, analysts are closely monitoring the potential impact on Bitcoin’s synthetic notional value and its integration into the global financial system. Harvey noted that in other commodity markets, the notional value of options often exceeds the physical supply, which can lead to price volatility. But he doesn’t expect long-term price disruptions for Bitcoin.
“Over time, the interests of speculators and hedgers will likely balance out, leading to a deeper, more liquid market,” Harvey said.
*This is not investment advice.