The success of options trading on BlackRock’s iShares Bitcoin Trust ETF (IBIT) serves as yet another signal that cryptocurrencies are here to stay as a viable investment class.
The ETF traded 73,000 options contracts within its first 60 minutes on the Nasdaq market, ranking it among the top 20 most active nonindex options, reports CNBC. The crypto firm Grayscale reacted quickly, offering its own bitcoin ETF options the very next day.
With the crypto-friendly Trump administration set to take office in January, many investors are anticipating more opportunities for individual investors to incorporate cryptocurrency in their portfolios. However, the approval to trade bitcoin options came in September, well before this year’s election.
“The options are independent of regulatory issues, since the underlying ETFs were approved already in January,” said James Wester, Co-Head of Payments at Javelin Strategy & Research. “This is just one more indication that institutional investors are becoming more comfortable with bitcoin as an asset class on its own.”
A Different Way to Play
Options trading allows investors to take advantage of an asset’s volatility by giving them the right to buy or sell it at a predetermined price, depending on whether they expect the price to rise or fall over a set period. These options are divided into puts, which are bets that the asset’s value will decline, and calls, which are bets that the asset’s value will appreciate. The put/call ratio for IBIT’s first day of trading was 0.225, meaning 82% of investors bet that bitcoin’s price would rise, compared to 18% who wagered it would fall.
The iShares Bitcoin ETF was one of 11 such vehicles that began trading in January. Although there was some skepticism about their long-term performance, their success has fueled speculation about the industry’s next move.
“Tying crypto, meaning tokens, to underlying assets will be the next hurdle,” said Wester. “That’s the longer-term view of how tokenizing things will change markets. How that will play out in terms of retail investors is still to be determined.” While the incoming administration is expected to be supportive of the crypto industry, Wester warns that the chains won’t come completely off. “The market being allowed to operate with clear rules and oversight will certainly help,” he said. “But crypto-friendly regulators still need to be regulators.”