The U.S. Securities and Exchange Commission (SEC) has recently bestowed its approval for the listing and trading of options concerning BlackRock’s spot Bitcoin ETF, the iShares Bitcoin Trust (IBIT).
The newly approved options linked to the iShares Bitcoin Trust are set to be physically settled, indicating that upon exercising the option, Bitcoin will be delivered to satisfy the contract. These American-style options allow for exercise at any moment before their expiration date, offering traders enhanced flexibility. The SEC clarified that the listing will adhere to the same regulations applicable to options on other exchange-traded funds (ETFs), including position limits and margin requirements.
“I expect that others will receive approval shortly,” noted Bloomberg Senior ETF Analyst Eric Balchunas. “This is a significant win for bitcoin ETFs, as it will attract greater liquidity, which in turn will draw in larger investors. The timing is a pleasant surprise, but not unexpected since James Seyffart and I projected a 70% chance of approval by the end of May.”
The SEC pointed out that this approval would enable investors to hedge their Bitcoin positions, using the options market to manage the inherent volatility associated with BTC. The iShares Bitcoin Trust has emerged as the most liquid spot Bitcoin ETF, fulfilling the criteria necessary for trading options. Additionally, the SEC reiterated that robust surveillance systems would be implemented to monitor any potential market manipulation and ensure orderly trading practices.
“IBIT stands as the most liquid spot Bitcoin ETF and ranks as the 11th most liquid ETF in the U.S. based on average volume (34,825,921 shares) and the 18th largest by average notional ($1,246,060,738),” stated the SEC. “As of May 22, 2023, IBIT had around 193,956 shareholders.”
This SEC approval aligns with the ongoing trend of expanding regulated financial products centered around Bitcoin, paving the way for its further integration into the global financial landscape. The ability to trade options on a spot Bitcoin ETF introduces new avenues for institutional investors looking to participate in the Bitcoin market while implementing stricter risk management strategies.
“It’s important to note: This is merely one phase of the approval process; the OCC and CFTC must also give their consent before the official listing occurs,” Balchunas cautioned. “The timelines for these two do not have a specific ‘clock’, so it’s unclear when they will approve. Nevertheless, it’s a significant step forward that the SEC has moved in this direction.”
