The United States spot Bitcoin exchange-traded fund (ETF) market is seeing a new wave of trading alternatives, including the availability of options. This latest move could attract liquidity and longer-term investors to the Bitcoin ecosystem, but it has a downside.
According to a CryptoQuant report, the availability of options for spot Bitcoin ETFs could increase the paper supply of BTC, allowing investors to gain exposure to the leading digital asset without investing through the spot market.
The Approval of Spot ETF Options
CryptoQuant disclosed that the U.S. Securities and Exchange Commission (SEC) recently approved the listing and trading of asset manager BlackRock’s iShares Bitcoin Trust (IBIT), the largest spot Bitcoin ETF in the market.
Options are financial derivative contracts that give investors the right to buy or sell specified cryptocurrencies at a predetermined price and date. This allows investors to capitalize on market movements without owning the underlying assets.
An IBIT option is now another tool for investors to hedge and speculate on BTC price movements, marking a new step toward broader institutional adoption. Analysts say this development highlights the increasing integration of crypto into traditional financial markets and a growing trend of regulatory acceptance of Bitcoin-related financial products.
A Potential Increase in BTC Paper Supply
Bitcoin options trading on the derivatives marketplace Chicago Mercantile Exchange (CME) has witnessed record-breaking growth this year. On March 12, these alternatives saw their highest open interest value of almost $500 million, representing a five-fold increase from last year’s maximum level.
Also, unlike futures market investors on CME, option traders appear to have a longer-term investing horizon. CryptoQuant analysts noted that most open options on the CME Bitcoin futures market have expiration dates ranging between one and three months, while options have a significant number of contracts with expiration dates of four or more months.
As Bitcoin rose to its record high in March, 45% of options contracts by dollar value had an expiration date of five months or more.
While options bring liquidity to Bitcoin, investors could long or short BTC without actually buying the asset. This pattern was witnessed during the bear market of 2022 as the Bitcoin supply in the perpetual futures market of crypto exchanges, measured by the open interest in terms of Bitcoin, increased from 279,000 to 549,000 BTC as investors shorted the asset.