Bitcoin ETF options divide analysts – ‘With all due respect…’

• Analysts agreed U.S. BTC options could inject more liquidity into BTC markets. 
• But, there were divided views on volatility and price impact in the long run. 

Market commentaries have piled in as the regulator approved more U.S. spot Bitcoin [BTC] ETF options. 

On the 18th of October, the U.S. Securities and Exchange Commission (SEC) gave a go-ahead for the products on the NYSE (New York Stock Exchanges) and Cboe (Chicago Board Options Exchange). 

NYSE American got the green light to offer options for Fidelity’s BTC fund, FBTC, and ARK 21Shares’ ARKB. Meanwhile, Cboe will trade Grayscale’s GBTC, mini BTC, and Bitwise’s BTIB.

This approval follows the recent clearance of BlackRock’s IBIT options.

So, what’s the potential impact on the BTC market and price? 

Mixed views on U.S. BTC ETF options

According to some analysts, this could set the pace for extra volatility and more liquidity in Bitcoin. 

For context, options allow professional traders to speculate and employ risk management (hedging) strategies without owning the underlying BTC asset. 

Last month, after IBIT options approval, Anthony Pompiliano, a BTC investor, stated that it would reduce BTC volatility and limit its upside potential. 

“The approval of options on Blackrock’s Bitcoin ETF will bring more institutional adoption of the asset, which will lower volatility & limit the explosive upside of Bitcoin.” 

However, Bitwise’s Jeff Park viewed the approval as a net positive for BTC volatility, liquidity, and price. He countered what he felt was a flawed take on the U.S. BTC ETF options. 

Park’s sentiment was shared by most analysts who shared their views with The Block.

Ed Tolson, CEO of Kbit, stated, 

“Institutional market makers, who are expected to take the other side of these trades, will likely be short gamma. This means they may need to buy as the price rises and sell as it falls, potentially amplifying volatility.”

However, Michael Harvey, head of franchise trading at Galaxy Digital, projected a short-term spike in volatility, which could be reduced in the long run.

“We expect retail traders to outnumber institutions initially, which could elevate volatility. Over time, as institutions adopt yield-generation strategies, such as selling volatility, this could dampen the overall volatility we see today.” 

Harvey’s outlook on volatility mirrored Pompiliano’s projection. 

In conclusion, analysts were confident that the approval would inject more liquidity into BTC markets.

However, there were mixed takes on volatility and price impact in the short and long term.