The much-anticipated launch of options trading for Bitcoin exchange-traded funds (ETFs) has hit a major milestone, with over $2 billion in notional volume traded on the very first day. This impressive debut comes despite strict position limits that experts argue are hindering the market’s true potential.
BlackRock’s IBIT Leads the Charge
Leading the pack is BlackRock’s iShares Bitcoin Trust (IBIT), which became the first US spot Bitcoin ETF to have options tied to it go live on the Nasdaq Tuesday. This gave IBIT a one-day head start over its competitors set to begin trading on Wednesday.
With a market cap of $44 billion, IBIT saw its options trade a staggering $2 billion in notional value on launch day. The ETF itself traded over $4 billion in volume, surpassed only by the SPDR S&P 500 ETF Trust (SPY), Invesco QQQ Trust Series 1 (QQQ), and iShares Russell 2000 ETF (IWM), all of which boast higher market caps.
Praise and Perspective from Analysts
Senior Bloomberg ETF analyst Eric Balchunas praised IBIT options’ first-day performance, noting that while they haven’t yet challenged the top ETFs, he expects that to happen in the coming days or weeks.
“$1.9b isn’t chopped liver for ONE day. For context, BITO did $363m and that was within 4 yrs. And this also has the 25,000 contract position limit. That said, $1.9b isn’t a giant level either, GLD did $5b today but give this a few days/week,” Balchunas remarked.
Position Limits Spark Debate
The eye-catching part of Balchunas’ statement is the magnitude of the position limit on IBIT and other Bitcoin ETF options, which is far more restrictive than in traditional finance. They were approved for just 25,000 contracts, meaning a market participant can only hold or control a maximum of 25,000 contracts at any given time.
Jeff Park, head of alpha strategies at Bitwise, elaborated on the unequal treatment ETFs are receiving.
Park explained on X that the exercisable risk, representing the total value of options contracts exercised or converted to actual shares, equates to less than 0.5% of IBIT’s remaining shares. Meanwhile, the industry standard is closer to 7%, representing a substantial 7% comparative figure. To illustrate just how minuscule the 0.5% figure is, CME Bitcoin futures contracts are allowed to trade 2,000 contracts, equivalent to 175,000 for IBIT.
“It’s clear to me the CME Group would prefer to trade Bitcoin primarily as futures, positioning itself as the dominant market with rollouts like the ‘BFFs [Bitcoin Friday futures]’. If the CFTC was as political as the SEC, maybe we wouldn’t have had an even rollout,” Park noted.
Bitcoin Hits New All-Time Highs
Despite the shackles on bitcoin-related products, BTC has managed to soar to fresh all-time highs above $94,000 yesterday. Additionally, Glassnode data shows options open interest, the dollar value of the number of active contracts, surpassed $40 billion for the first time.
Options are a smaller product than futures, however, which have open interest at $60 billion, so it has some catching up to do. But with the rollout of these options products, that could happen sooner rather than later.
Record Inflows for Bitcoin ETFs
Adding to the booming news of US spot Bitcoin ETFs, Farside data shows they saw net inflows of $816.4 million, bringing total net inflows to a whopping $28.5 billion.
The explosive growth and investor demand for Bitcoin ETFs and related derivatives highlight the continued mainstreaming of crypto assets. However, the position limit debate underscores the ongoing regulatory challenges and discrepancies faced by this nascent market as it strives to reach its full potential.
As Bitcoin continues to hit new heights and institutional products gain traction, all eyes will be on regulators to see if they level the playing field and allow these innovative offerings to flourish unencumbered.
With a market cap of $44 billion, IBIT saw its options trade a staggering $2 billion in notional value on launch day. The ETF itself traded over $4 billion in volume, surpassed only by the SPDR S&P 500 ETF Trust (SPY), Invesco QQQ Trust Series 1 (QQQ), and iShares Russell 2000 ETF (IWM), all of which boast higher market caps.
Praise and Perspective from Analysts
Senior Bloomberg ETF analyst Eric Balchunas praised IBIT options’ first-day performance, noting that while they haven’t yet challenged the top ETFs, he expects that to happen in the coming days or weeks.
“$1.9b isn’t chopped liver for ONE day. For context, BITO did $363m and that was within 4 yrs. And this also has the 25,000 contract position limit. That said, $1.9b isn’t a giant level either, GLD did $5b today but give this a few days/week,” Balchunas remarked.
Position Limits Spark Debate
The eye-catching part of Balchunas’ statement is the magnitude of the position limit on IBIT and other Bitcoin ETF options, which is far more restrictive than in traditional finance. They were approved for just 25,000 contracts, meaning a market participant can only hold or control a maximum of 25,000 contracts at any given time.
Jeff Park, head of alpha strategies at Bitwise, elaborated on the unequal treatment ETFs are receiving.
Park explained on X that the exercisable risk, representing the total value of options contracts exercised or converted to actual shares, equates to less than 0.5% of IBIT’s remaining shares. Meanwhile, the industry standard is closer to 7%, representing a substantial 7% comparative figure. To illustrate just how minuscule the 0.5% figure is, CME Bitcoin futures contracts are allowed to trade 2,000 contracts, equivalent to 175,000 for IBIT.
“It’s clear to me the CME Group would prefer to trade Bitcoin primarily as futures, positioning itself as the dominant market with rollouts like the ‘BFFs [Bitcoin Friday futures]’. If the CFTC was as political as the SEC, maybe we wouldn’t have had an even rollout,” Park noted.
Bitcoin Hits New All-Time Highs
Despite the shackles on bitcoin-related products, BTC has managed to soar to fresh all-time highs above $94,000 yesterday. Additionally, Glassnode data shows options open interest, the dollar value of the number of active contracts, surpassed $40 billion for the first time.
Options are a smaller product than futures, however, which have open interest at $60 billion, so it has some catching up to do. But with the rollout of these options products, that could happen sooner rather than later.
Record Inflows for Bitcoin ETFs
Adding to the booming news of US spot Bitcoin ETFs, Farside data shows they saw net inflows of $816.4 million, bringing total net inflows to a whopping $28.5 billion.
The explosive growth and investor demand for Bitcoin ETFs and related derivatives highlight the continued mainstreaming of crypto assets. However, the position limit debate underscores the ongoing regulatory challenges and discrepancies faced by this nascent market as it strives to reach its full potential.
As Bitcoin continues to hit new heights and institutional products gain traction, all eyes will be on regulators to see if they level the playing field and allow these innovative offerings to flourish unencumbered.
