Nasdaq Seeks to Increase Options Contract Limit for iShares Bitcoin Trust ETF
Nasdaq has recently filed a proposal to raise the options contract limit for the iShares Bitcoin Trust ETF (IBIT) from 25,000 to 250,000 contracts, representing an exercisable risk of 2.89%. This move, as outlined in a Jan. 6 SEC filing, aims to address the current limit of 0.4% of exercisable risk for the spot Bitcoin (BTC) exchange-traded fund (ETF). Jeffrey Park, head of alpha strategies at Bitwise, has expressed that the current limit is relatively low and believes that an increase would be beneficial.
The contract limit sets a cap on the number of contracts that can be held on one side of the market, and it varies based on factors such as outstanding shares and trading volume. Nasdaq’s request for a higher limit highlights the potential for volume growth in IBIT, which could drive the approval from the SEC. In the filing, Nasdaq stated that they anticipate continued growth in options volume for IBIT as investor participation in the options market expands.
Park has expressed optimism regarding the outcome of the application, stating that the facts are in favor of Nasdaq and BlackRock. He also mentioned that the approval of options trading in spot Bitcoin ETFs is a significant step in attracting more sophisticated traders and increasing liquidity in the market.
IBIT’s options trading debut saw over $446 million in trading volume within the first few hours, a remarkable figure according to Bloomberg senior ETF analyst Eric Balchunas. Despite the approval, Park noted that crypto assets still face unique restrictions compared to traditional investment vehicles. He pointed out the 2,000-contract limit for CME Bitcoin futures contracts, which is significantly lower than the proposed 250,000-contract limit for IBIT.
Park believes that IBIT could qualify for even higher contract limits, potentially reaching 400,000 options contracts, which would be equivalent to 7% of outstanding shares as of November 19, 2024. He highlighted that a low cap for options contracts could lead to unusual market dynamics, such as arbitrage opportunities between spot Bitcoin ETF shares.
In conclusion, Nasdaq’s proposal to increase the options contract limit for IBIT reflects the growing interest in cryptocurrencies and the evolving landscape of digital asset trading. This move could pave the way for more liquidity and participation in the crypto market, ultimately benefiting investors and traders alike.