What impact will SEC's approval of BlackRock's Bitcoin ETF "options trading" have on the market?

Author: It is Fengyue Jiangwan

The U.S. Securities and Exchange Commission has approved asset management company BlackRock to list and trade Bitcoin spot ETF options on the Nasdaq, with the trading code "IBIT". Investors can increase their investment exposure to Bitcoin at a lower cost and trade in a more flexible way.

According to Reuters, the U.S. Securities and Exchange Commission (SEC) has approved asset management giant BlackRock to list and trade Bitcoin spot ETF options on the Nasdaq, with the trading code "IBIT".

Investors can increase their investment exposure to Bitcoin at a lower cost by purchasing IBIT options, and conduct risk hedging or speculative trading in a more flexible way.

It is understood that SEC approval is only the first stage, and it still needs to obtain approval from the U.S. Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC) before it is officially listed.

An option is a financial derivative that gives the holder the right (but not the obligation) to buy or sell an asset at an agreed price within a certain time in the future. Options are often used as a risk management tool to hedge the risk of market volatility or as a speculative tool to obtain potential returns by predicting changes in asset prices.

Bitwise: The biggest positive in the second half of the cryptocurrency field

Soon after the news was released, Jeff Park, head of strategy at crypto asset management company Bitwise Alpha, tweeted this morning that the SEC's approval of the listing of Bitcoin spot ETF options may be the biggest positive in the cryptocurrency field in the second half of 2024:

It is no exaggeration to say that this is the best thing that could happen to the cryptocurrency field in the second half of the year.

We are about to witness the most extraordinary "volatility" rise in financial history. It will be incredibly wonderful.

Bloomberg senior analyst Eric Balchunas also tweeted today that this is a huge victory for Bitcoin spot ETFs:

It is expected that other Bitcoin ETFs will be approved soon, which is a major victory for Bitcoin ETFs.

Because it will attract more liquidity and thus more big fish. Although the approval time this time is somewhat unexpected, it is not surprising because @JSeyff and I predicted long ago that there is a 70% chance of approval before the end of May.

The impact of options on Bitcoin

In addition, Jeff Park also published an article that carefully elaborates on the important impact of options on Bitcoin. The article first points out that the nature of the regulated options market and the powerful force of the combination of the two mark the most important progress in the crypto market to date.

The article goes on to say that although limited supply is an advantage of Bitcoin, which also limits Bitcoin from being widely adopted and providing market efficiency, now that the options market is open, Bitcoin can increase leverage through options, thereby improving market efficiency.

In addition, when market makers short Gamma and cause a Gamma squeeze, Bitcoin prices will soar abnormally, and continued price increases will be more drastic because traders will be forced to keep buying at higher prices.

Shorting Gamma means that the option positions held by traders will increase their risks as market prices fluctuate. Usually this means that when the price of the underlying asset rises, traders must continue to buy more of the underlying asset to hedge their positions, and when the price falls, they need to sell more, which puts them at greater risk when the market fluctuates violently. This situation is prone to triggering the so-called Gamma squeeze, further driving violent price fluctuations.

In summary, the Bitcoin spot ETF options market is the first time in the financial world that Bitcoin spot has been included as a supply-constrained commodity in a regulated leveraged market. However, Bitcoin is unique in that it still has a parallel, decentralized market that cannot be closed by traditional exchanges.