In late October 2024, the burgeoning Bitcoin ETF industry moved a step closer to the traditional financial landscape for investors when the SEC approved proposals from both NYSE American and Cboe to list and trade options on a number of Bitcoin ETFs.
There are now approximately two dozen Bitcoin ETFs available, comprising both those that hold actual Bitcoin as spot funds and those that focus on Bitcoin futures. The SEC's announcement in October has paved the way for options trading on a select few of these funds. For investors looking to leverage this new options trading strategy with Bitcoin ETFs, it's crucial to note that, as of the end of October 2024, the funds approved for options trading include:
1. iShares Bitcoin Trust NASDAQ: IBIT
2. Grayscale Bitcoin Trust NYSEARCA: GBTC
3. ARK 21Shares Bitcoin ETF CBOE: ARKB
4. Fidelity Wise Origin Bitcoin Fund NYSEARCA: FBTC
5. Grayscale Bitcoin Mini Trust NYSEARCA: BTC
6. Bitwise Bitcoin ETF Trust NYSEARCA: BITB
One advantage of Bitcoin ETFs over directly holding Bitcoin is that these funds offer some protection against the risks associated with managing a wallet and executing trades on a cryptocurrency exchange. Bitcoin ETFs provide investors with exposure to Bitcoin and enable them to track the price of the largest cryptocurrency by market capitalization, all while helping to reduce overall risk.
Options trading with Bitcoin ETFs operates similarly to options trading for other securities, giving investors the opportunity to buy or sell shares of these ETFs at predetermined prices in the future. Just like other options strategies, Bitcoin ETF options allow investors to speculate on whether the price of the fund—reflective of actual Bitcoin or Bitcoin futures—will rise or fall.
Additionally, Bitcoin ETF options provide a way for investors to hedge against risks. For those with significant holdings in Bitcoin ETFs, put options can serve as a safeguard against sudden price declines. Meanwhile, call options enable investors to speculate on potential price increases without requiring a full upfront investment in Bitcoin ETFs.
On the flip side, options trading for Bitcoin ETFs introduces additional layers of risk and uncertainty to an already volatile market. Bitcoin has experienced significant price fluctuations; over the past year, it has dropped as low as approximately $35,000 and surged to around $73,000. Consequently, Bitcoin ETFs are likely to exhibit similar volatility if they accurately track these price movements.
While the introduction of options trading enhances the market's robustness and dynamism, it also increases leverage and overall risk for individual investors looking to capitalize on this new opportunity. The availability of options trading could even lead to greater volatility within the Bitcoin market and the broader Bitcoin ETF ecosystem.
With only a select few ETFs currently offering options trading, there is a possibility that the Bitcoin ETF market may become divided. Funds that include options trading may attract investors seeking more complex trading strategies, while those without options could become a refuge for investors preferring a more traditional approach.
When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients.
