As the Bitcoin rally nears records and takes Wall Street by storm, crypto bulls and bears can now jack up their bets with derivatives on the newly minted futures ETF -- the latest industry watershed.
After the second-busiest exchange-traded debut on record, options on the ProShares Bitcoin Strategy ETF (ticker BITO) will begin trading on the NYSE Arca Options and NYSE American Options exchanges on Wednesday.
It means investors will be able to hedge or lever up underlying positions in the first U.S.-listed fund tracking futures on the world’s biggest digital currency. Traders -- whether or not they hold the fund -- can bet on or against BITO by buying and selling bullish call contracts or bearish puts.
It all represents a deepening of the crypto ecosystem for pros and day traders alike.
“Options are huge in this case,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence. “Retail-YOLO types will be able to trade calls on Bitcoin for the first time in regulated financial markets. Institutions can use puts to hedge or go short Bitcoin.”
The options trading window opens as the world’s largest cryptocurrency moves toward its all-time high, fueled in large part by booming demand for BITO. Well over 20 million shares of the ETF changed hands Tuesday, data compiled by Bloomberg show, with assets in the fund closing the first day at around $570 million, according to ProShares.
The derivatives provide investors a fresh way to potentially profit from one of Bitcoin’s most defining characteristics -- its volatility. While the coin has surged about 120% in 2021, that advance came with a more than 55% drawdown along the way. Bitcoin’s last three full-year returns were a 74% loss followed by gains of 95% and 305%.
“That’s one of the most exciting pieces about this asset class -- volatility,” said Jesse Proudman, co-founder and CEO at Makara, an automated crypto investment advisor. “So any additional option, pardon the pun, that U.S. investors have to obtain access to options I think is a net benefit.”
Of course, options can deliver crushing losses in addition to amplifying gains. That’s a lesson many individual investors learned the hard way in the past 18 months, as a stock rebound from the Covid crash and subsequent turbulence whiplashed an army of day traders.
The introduction of ETF options should serve to make the crypto derivatives market more liquid as a whole, according to David Abner at Gemini Trust Co., a digital asset firm.
“Yes, you can go to crypto platforms and trade options, no question -- but you have to go to crypto platforms to do that,” Abner said. Options on the fund “adds to the ecosystem around the ETF which enables better trading for it, so I think it’s a good thing for both options traders and investors and the ETF itself,” he said.
©2021 Bloomberg L.P.