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The U.S. Securities and Exchange Commission’s (SEC) recent approval of options trading for spot Bitcoin ETFs should have significant benefits for investors and the market.

After approving options trading on the Nasdaq for the largest spot Bitcoin ETF in September, the iShares Bitcoin Trust (Nasdaq: IBIT), the regulatory agency recently approved the same for other spot Bitcoin ETFs that trade on the New York Stock Exchange (NYSE) and CBOE exchange.

In an October 18 filing, the SEC approved NYSE’s proposal to amend Rule 915 “to allow the Exchange to list and trade options on the following exchange-traded products: the Grayscale Bitcoin Trust (NYSEARCA: GBTC), the Grayscale Bitcoin Mini Trust (NYSEARCA: BTC), and the Bitwise Bitcoin ETF (NYSEARCA: BITB).

On the same day, in a separate filing, the SEC approved options trading on the CBOE Index for the Fidelity Wise Origin Bitcoin Fund (CBOE: FBTC), ARK21Shares Bitcoin ETF (CBOE: ARKB), Invesco Galaxy Bitcoin ETF (CBOE: BTCO), Franklin Bitcoin ETF (CBOE: EZBC), VanEck Bitcoin Trust (CBOE: HODL), WisdomTree Bitcoin Fund (CBOE: BTCW), and the Valkyrie Bitcoin Fund (Nasdaq: BRRR).

What this means for investors

While options trading for spot Bitcoin ETFs will not commence until the Options Clearing Corporation (OCC) confirms that it is able to clear and settle such options, getting SEC approval was a major hurdle. Experts say this is a big deal for crypto investors.

However, options trading on Bitcoin ETFs would do several things, including permit hedging, create more liquidity, better price efficiency, and less volatility, according to the filing.  

“The Exchange believes that offering options on Bitcoin Funds will benefit investors by providing them with an additional, relatively lower cost investing tool to gain exposure to the price of Bitcoin and hedging vehicle to meet their investment needs in connection with Bitcoin-related products and positions,” the filing reads. Further, “the Exchange believes that listing Bitcoin Fund options may cause investors to bring this liquidity to the Exchange, would increase market transparency and enhance the process of price discovery conducted on the Exchange through increased order flow.”

More broadly, it should spark interest from institutional investors, and marks another major step in bringing Bitcoin and crypto to mainstream investors.

“Large institutional holders of Bitcoin usually just don’t want 1X price exposure,” said Cory Klippsten, CEO of Swan Bitcoin, in a video posted after the SEC approval last week. “They want to be able to hedge it. They don’t want to see those big drawdowns, they want to have yield strategies, they want to do all kinds of crazy things, and options lets them do that dramatically better.”

And because institutional investors can hedge their positions and utilize much more complex investment strategies, they can now justify having larger stakes in Bitcoin ETFs, which will lead to more inflows, Klippsten said.

While this should provide a boost in institutional activity, it will also attract more retail investors who engage in options trading.

A report released on Friday by Binance said that, as of October 10, 80% of the $21.6 billion in inflows into the 11 spot Bitcoin ETFs since they launched have been from retail investors. That could soon change as the result of the SEC options approval.

Surge in spot Bitcoin ETF inflows

In the past few weeks, leading up to the SEC approval and continuing this week, there has been a surge of inflows into these spot Bitcoin ETF funds.

Since October 11, some $3.3 billion has flowed into the spot Bitcoin ETFs, including $188 million on Thursday. That comes out to an average of some $327 million per day across 10 trading days through October 24. That’s higher than the roughly $108 million daily average, per Coin Telegraph, and about 15% of the total $21.6 billion that has flowed into the funds since they launched.

“Bitcoin ETFs have pulled in $3 billion in the past two weeks. The end-of-year stretch is going to be wild,” Bitwise CFO Matt Hougan said in an X post on Friday.

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