Analysis: The trading of Bitcoin spot ETF options will increase market liquidity and reduce volatility

Nate Geraci, President of The ETF Store, anticipates that once Bitcoin spot ETF options trading begins, there will be "a series" of new applications such as "Bitcoin buffer or defined outcome ETFs, Bitcoin premium income or yield max ETFs, Bitcoin tail risk ETFs and Bitcoin convexity ETFs". Meanwhile, Bloomberg's senior ETF analyst Eric Balchunas said it would attract more liquidity which in turn will "attract more large participants." Retail traders typically use options for speculation while large institutions use them for hedging. Market structure analyst Dennis Dick stated that bitcoin has a huge retail following which means compared to stock ETF options, speculative behavior might be higher with bitcoin ETF options.

"Contrary to popular belief, options actually reduce volatility," Dick said in an email. "As open contracts increase they create natural buyers and sellers on both sides of the market... this adds liquidity to the market thereby reducing volatility." For this reason, Dick expects that as interest in bitcoin ETF option trading increases so too will the underlying asset (i.e., bitcoin) experience reduced volatility.