In a significant milestone for Bitcoin investment vehicles, options contracts began trading this week on several Bitcoin exchange-traded funds (ETFs) in the United States. Leading the pack was BlackRock’s iShares Bitcoin Trust (IBIT), which saw its options exceed $2 billion in notional exposure on the very first day.
Strict Position Limits Fail to Dampen Demand
What makes this early success even more impressive is that the Bitcoin ETF options are subject to much tighter position limits compared to options in traditional finance markets. The options were approved for only 25,000 contracts per entity, representing less than 0.5% of IBIT’s shares outstanding.
In contrast, the industry standard for position limits is closer to 7% of shares outstanding, according to Jeff Park, Head of Alpha Strategies at Bitwise. At that ratio, the comparable figure for IBIT options would have been around 400,000 contracts.
Regulators Aim to Prevent Market Manipulation
The strict cap was put in place by the CFTC and SEC regulators to prevent potential market manipulation, given Bitcoin’s status as a relatively new and often volatile asset class. Some believe the CME Group, which offers Bitcoin futures, lobbied for the lower limits to maintain its dominant position in Bitcoin derivatives trading.
If the CFTC had been as political as the SEC, we might not have had an even playing field at all.
– Jeff Park, Bitwise
Bitcoin Price Surges to New Highs
News of the successful Bitcoin ETF options launch coincided with the Bitcoin price surging past $94,000 to set a new all-time high. On-chain data from Glassnode showed that open interest in Bitcoin options, representing the dollar value of active contracts, topped $40 billion for the first time ever.
While options remain a much smaller market than futures, with the latter having $60 billion in open interest, the gap could narrow quickly as more Bitcoin ETF options products come to market in the coming days and weeks.
Huge Inflows into Bitcoin ETFs
The explosive options trading was the icing on the cake for U.S. Bitcoin ETFs, which saw net inflows of $816.4 million according to data from Farside, bringing total net inflows to a whopping $28.5 billion. This massive influx of institutional and retail investment into Bitcoin ETFs underscores the pent-up demand for regulated, easily accessible Bitcoin investment products.
As more options and other derivatives are launched, Bitcoin ETFs could rival their biggest traditional finance counterparts in trading volume and assets under management. While strict position limits may be an obstacle in the short term, the sheer momentum behind Bitcoin’s financialization appears unstoppable.
