In a watershed moment for cryptocurrency markets, options contracts began trading this week on the first-ever US spot Bitcoin exchange-traded funds (ETFs). Despite highly restrictive position limits compared to other options products, notional volume surpassed $2 billion on the very first day.
BlackRock’s IBIT Bitcoin ETF Options Lead the Pack
Leading the charge was the hugely anticipated iShares Bitcoin Trust (IBIT) from asset management giant BlackRock. IBIT options alone accounted for over $2 billion notional on day one, according to data from Coinglass. The underlying ETF itself traded over $4 billion in volume, trailing only major index ETFs with much larger market caps.
Senior ETF analyst Eric Balchunas applauded the successful debut of IBIT options, noting it was “unheard of” for a single day launch. However, he tempered expectations, adding:
“$1.9 billion still isn’t big dog level yet. GLD [gold ETF] did $5 billion today. But give it a few more days/weeks.”
– Eric Balchunas, Senior ETF Analyst
Strict Position Limits Compared to Industry Standards
What makes the early success of Bitcoin ETF options even more impressive is the extremely tight position limits imposed by regulators. Jeff Park, Head of Alpha Strategies at Bitwise, highlighted that the 25,000 contract limit approved for Bitcoin ETF options is far below industry norms relative to the notional size.
Park explained that the “exercisable risk” of IBIT options contracts currently represents less than 0.5% of IBIT shares outstanding. By comparison, industry standards would allow closer to 7%, or about 400,000 contracts for IBIT, based on its current $44 billion market cap.
Veteran CME Group Bitcoin futures can trade up to 2,000 contracts per entity, equivalent to 175,000 for IBIT. Park believes the CME prefers Bitcoin to trade mainly as a futures product rather than options, positioning itself as the dominant market, and suspects “politicization” by the CFTC and SEC led to the artificially low limits for ETF options to avoid potential market manipulation.
Bitcoin Hits New All-Time Highs Above $94K
Despite the restraints on these new Bitcoin investment vehicles, the price of BTC itself soared to fresh record highs above $94,000 amidst the launch excitement. Data from Glassnode also shows options open interest, the total notional value of active contracts, surpassed $40 billion for the first time ever.
While still dwarfed by futures open interest at $60 billion, options are growing quickly and could catch up soon with the rollout of these new ETF products. Institutional flows are already pouring in, with net inflows of over $800 million into US spot Bitcoin ETFs this week alone, bringing total net inflows to $28.5 billion, per data from Farside.
As Bitcoin and the broader crypto market continue to mature, the advent of ETF options represents another key building block and source of liquidity. Even with strict limits to start, the early volumes bode well for future growth as regulators gain comfort with these products.
The coming weeks and months will provide further insight into the demand profile and potential impact of Bitcoin ETF options as additional products come online. But if the resoundingly successful first few days are any indication, a new chapter of cryptocurrency market evolution is upon us.
