Summary
- The US SEC approved options trading for BlackRock’s Bitcoin ETF, IBIT.
- Head of Alpha Strategies analyzes the game-changing nature of BTC ETF options.
The US SEC has approved Nasdaq’s request to list and trade options for BlackRock’s Bitcoin ETF known as the iShares Bitcoin Trust, under the ticker IBIT.
According to official notes, this decision allows Nasdaq to trade options for IBIT in the same way that it handles other ETF options, following the exchange’s existing rules.
The options will be physically settled and they will follow the American-style exercise. IBIT meets Nasdaq’s listing standards, which require a vast number of widely held and actively traded shares.
The SEC’s approval came on September 20, 2024.
BlackRock’s Bitcoin ETF, IBIT, has almost $22.5 billion in net assets locked in their crypto product as of September 20, according to data from SoSoValue.
But why are Bitcoin ETF options important? Head of Alpha Strategies, Jeff Park reveals why the crypto products will be a game-changer in 2025.
The Game-Changing Nature of Bitcoin ETF Options
In a new post via X, Park addresses what he calls the game-changing nature of Bitcoin ETF options, saying that the crypto products will “be wild,” especially in 2025.
Here are the key points that he makes in the note.
1. Bitcoin’s Notional Value Will Be Fractionally Banked
He says that for the first time, Bitcoin’s notional value will be fractionally banked with ETF options. He explained that while BTC’s non-custodial capped supply is its greatest virtue, it also limits its ability to create synthetic leverage.
He believes that with the ETF options, BTC’s synthetic notional exposure can grow exponentially attracting investors, which would be a great opportunity for BTC ETFs to enhance their financial utility.
2. Bitcoin Can Express Duration As Part of the Leverage Calculation
With Bitcoin options, investors can make duration-based portfolio allocation bets, especially for long-term horizons. Owning long-dated OTM calls as a premium spend will offer investors more returns compared to a fully collateralized position that could drop.
3. Practical Implication of the “Volatility Smile”
Park also brings into discussion Bitcoin’s “volatility smile” – which means that melt-ups are as frequent as melt-downs in terms of prices. Historically, with call options, as spot rises, implied volatility tends to drop.
In the case of Bitcoin options, when the spot goes up, so does the volatility and more upside leads to even more upside, dealers being forced to keep buying at higher prices.
4. Bitcoin Cannot Be Diluted to Accommodate This Leverage
Stocks like GME and AMC where management can issue new shares to exploit pricing anomalies can lead to a cap on the stock’s rise. Bitcoin is different, in the sense that most physical common=dities have expiration dates, tending to trade with the futures market, not the spot market.
Futures markets, unlike spot, vary in gross and notional exposure based on expiration dates, and net interests of physical vs paper – this means that they don’t allow focused participation in one direction. These groups are also subject to supply manipulation, which is not applicable to Bitcoin.
Overall, the Bitcoin ETF options market is the first time that the financial world will see regulated leverage on a perpetual commodity that is truly supply-constrained.
In such scenarios in which regulated markets may shut down, Bitcoin will always be a parallel and decentralized market that cannot be terminated.