A recent report from CryptoQuant dives into the pros and cons of Bitcoin ETF options trading. They call it a “significant milestone.” Why? Because it shows increased liquidity and the involvement of institutional investors, which are good signs for Bitcoin's future.
Since the SEC approved options trading on BlackRock’s IBIT ETF in late September, we’re seeing some exciting changes in the market. This approval has been highly anticipated, and it might even lead to similar options for Ethereum ETFs. CryptoQuant's report highlights the opportunities that come with this development.
CryptoQuant describes the SEC’s decision as a “significant milestone.” They point out several benefits for the market. For instance, open interest in Bitcoin options trading skyrocketed nearly fivefold from March 2023 to the approval date a year later. This indicates a growing market for IBIT options.
The report emphasizes that this decision reflects how cryptocurrencies are becoming more integrated into traditional financial markets. It aligns with the increasing acceptance of Bitcoin-related financial products. The approval is expected to boost liquidity and attract more investors to the Bitcoin space, paving the way for broader institutional adoption.
CryptoQuant focuses on the real benefits of this approval, not just the symbolic ones. They note that options traders often take a longer-term approach compared to futures traders. In fact, nearly half of all options in the existing Bitcoin market have an expiration date of five months or more. In contrast, most futures trades expire in less than three months.
With these new options trades, traders will have more financial instruments to choose from, which should help increase overall market liquidity. Eric Balchunas also shares this view, suggesting that IBIT options will attract larger traders and more liquidity. A key example of these new tools is the ability for investors to sell covered calls.
According to the report, “Investors who hold spot Bitcoin can sell call options and collect the premium from the call option, earning yield from their Bitcoin holdings in a regulated way.”
However, there’s a catch. These options might also increase the “paper” supply of Bitcoin. Many sophisticated methods for gaining exposure to Bitcoin don’t involve actual Bitcoin changing hands. This trend can have negative implications. Historically, increases in paper supply have led to aggressive shorting of Bitcoin, which is seen as a bearish signal.