BlackRock’s market-leading spot Bitcoin exchange-traded fund might expand further after the US Securities and Exchange Commission raised position limits for a variety of Bitcoin funds, as stated by the crypto financial services firm NYDIG.
On Tuesday, the SEC augmented the permitted number of options contracts from 25,000 to 250,000 “for all ETFs with options,” encompassing the iShares Bitcoin Trust ETF (IBIT) but excluding the Fidelity Wise Origin Bitcoin Fund (FBTC), NYDIG’s global head of research, Greg Cipolaro, mentioned in a report issued on Friday.
“This modification is expected to extend the substantial advantage that IBIT already possesses against other competitors, whilst weakening FBTC’s position as the second-largest options player,” Cipolaro remarked.
IBIT manages $85.5 billion in assets, four times more than FBTC, which is the second-largest Bitcoin (BTC) ETF by assets at $21.35 billion, as per CoinGlass.
Options limit increase to stabilize volatility
Cipolaro indicated that the SEC’s move to elevate options position limits on Bitcoin ETFs could potentially reduce Bitcoin’s volatility and stimulate additional spot demand.
“This adjustment allows for bolder execution of options strategies, such as covered call selling,” he explained, where traders sell a call option while holding the underlying asset, thereby limiting downside risk but also capping the profit obtainable from the transaction.
Cipolaro also noted that diminished volatility renders Bitcoin “attractive on a risk-parity basis, potentially bringing in new capital” from institutional portfolios seeking diversified risk exposure.
“The feedback loop of diminishing volatility resulting in increased spot purchasing could evolve into a significant catalyst for ongoing demand,” he remarked.
SEC approvals to influence market
The SEC proceeded with a series of various regulatory approvals related to ETFs on Tuesday, notably endorsing in-kind creation and redemption on crypto ETFs, permitting the exchange of shares for the underlying cryptocurrencies rather than cash.
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Cipolaro indicated that this was a “crucial feature” ETF issuers desired prior to the approval of their products, and now that it is in place, it will “have substantial effects on market structure and accessibility for investors.”
He further stated that Authorized Participants (APs) — financial entities that oversee the creation and redemption of ETF shares — lacking crypto capabilities “will likely miss out on arbitrage opportunities and find it challenging to provide competitive pricing.”
“Currently, there are just two APs, Jane Street and Virtu, that also possess corresponding crypto entities capable of executing both sides of the transaction,” Cipolaro noted, “We anticipate that broker-dealers (APs) without crypto capabilities will either acquire or partner to remain competitive.”
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