The exchange-traded fund (ETF) market for spot Bitcoin in the United States is witnessing an influx of trading possibilities, including the presence of options. This most recent development has the potential to bring liquidity and investors with longer-term horizons into the Bitcoin ecosystem; yet, it also has a drawback.
Market research suggests that the accessibility of options for spot Bitcoin exchange-traded funds (ETFs) could lead to an increase in the paper supply of Bitcoin (BTC). This would enable investors to obtain exposure to the most prominent digital asset without having to participate through the spot market specifically.
The Securities and Exchange Commission (SEC) of the United States recently gave its approval for the listing and trading of the iShares Bitcoin Trust (IBIT), which is the largest spot Bitcoin exchange-traded fund (ETF) currently available on the market.
Options are a type of financial derivative contract that provides investors with the right to buy or sell particular cryptocurrencies at a point in time and price that has been defined in advance. Because of this, investors are able to profit from changes in the market without actually holding the assets that are being traded.
A further step toward wider institutional use is marked by the introduction of an IBIT option, which provides investors with an additional instrument to hedge and speculate on the swings of the Bitcoin price. According to analysts, this new move exemplifies the expanding trend of regulatory acceptance of Bitcoin-related financial products as well as the increasing integration of cryptocurrency into regular financial markets.
CME’s Bitcoin Options Set New Records
Options trading on Bitcoin that takes place on the derivatives market This past year, the Chicago Mercantile Exchange (CME) has experienced growth that has broken all previous records. The open demand value of these alternatives reached its highest point on March 12th, reaching approximately $500 million. This represents a fivefold rise from the maximum level that was reached throughout the previous year.
Additionally, in contrast to investors in the futures market on CME, traders in options appear to utilize a more extended time horizon for their investments. The majority of open possibilities on the CME Bitcoin futures market contain expiration dates that range between one and three months, according to market analysts. On the other hand, options have a large number of contracts that have expiration dates that are four months or longer.
In March, when Bitcoin reached a new all-time high, forty-five percent of the options contracts that were valued in dollars had an expiration date that was at least five months away. Without actually purchasing the asset, investors are able to long or short Bitcoin through the use of options, which lend liquidity to the cryptocurrency. During the bear market that occurred in 2022, this pattern was observed. The supply of Bitcoin in the perpetual futures market of cryptocurrency exchanges surged from 279,000 to 549,000 BTC as a result of investors shorting the asset.
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