Localized Bitcoin ETF Options Could Attract Longer-Term Investors, But There’s a Catch: CryptoQuant

The local U.S. 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 long-term investors to the Bitcoin ecosystem, but it has a downside.

According to a report by CryptoQuant, the availability of options for spot Bitcoin ETFs could increase the supply of paper BTC, allowing investors to gain exposure to the leading digital asset without investing through the spot market.

Approval of spot ETF options

CryptoQuant revealed that the US Securities and Exchange Commission (SEC) recently approved the listing and trading of asset manager iShares Bitcoin Trust (IBIT), the largest spot Bitcoin ETF on 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 towards wider institutional adoption. Analysts say this development highlights the growing 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 Chicago Mercantile Exchange (CME) derivatives market has witnessed record growth this year. On March 12, these alternatives saw their highest open interest value of nearly $500 million, representing a fivefold increase from last year’s peak.

Also, unlike futures market investors on CME, options traders appear to have a long-term investment horizon. CryptoQuant analysts noted that the majority of open options on the CME Bitcoin futures market have expiration dates ranging from one to three months, while options have a significant number of contracts with expiration dates of four or more months.

As Bitcoin reached its all-time high in March, 45% of options contracts by dollar value had an expiration date of five months or more.

Although options bring liquidity to Bitcoin, investors could long or short BTC without actually buying the asset. This pattern was seen during the bear market of 2022, as the supply of Bitcoin in the crypto exchanges’ perpetual futures market, as measured by open interest in Bitcoin terms, increased from 279,000 to 549,000 BTC as investors they reduced the asset.

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