SEC Raises Options Limits on Bitcoin ETFs, Giving BlackRock’s IBIT a Bigger Edge

BlackRock’s spot Bitcoin ETF, IBIT, may be positioned to widen its lead over rival Bitcoin ETFs after the SEC approved a tenfold increase in options position limits for all ETFs with options, according to a new report by crypto financial services firm NYDIG.

The SEC raised the cap from 25,000 to 250,000 contracts per ETF on Tuesday, a move that directly benefits funds like IBIT but excludes the Fidelity Wise Origin Bitcoin Fund (FBTC), said Greg Cipolaro, NYDIG’s global head of research. 

“The change is likely to widen the monstrous lead that IBIT already has over the other players, while it hobbles FBTC’s position as the second-largest options player,” Cipolaro noted.

Currently, IBIT commands a dominant market position with $85.5 billion in assets under management—four times that of FBTC’s $21.35 billion, based on data from CoinGlass.

Volatility Reduction Could Attract More Institutional Capital

Cipolaro believes the expanded options limits could have a broader impact on the Bitcoin market by smoothing out price fluctuations. “This change enables more aggressive implementation of options strategies, like covered call selling,” he explained. Covered calls, where investors sell call options while holding the underlying asset, can reduce risk and provide steady income, though they cap potential gains.

Lower volatility, Cipolaro argued, makes Bitcoin more attractive from a risk-parity investment standpoint, potentially drawing in institutional portfolios looking to balance their risk exposure. “The feedback loop of falling volatility leading to increased spot buying could become a powerful driver of sustained demand,” he added.

The increase in options capacity also paves the way for more complex and dynamic trading strategies, which could deepen liquidity and increase investor participation in Bitcoin markets.

New ETF Rules by SEC May Reshape Market Structure

The SEC’s decision wasn’t limited to options. On the same day, it also approved in-kind creation and redemption for crypto ETFs—a process that allows ETF shares to be exchanged directly for underlying crypto assets, not just cash.

Cipolaro said this change had long been a goal for ETF issuers and would significantly impact market structure. However, the shift may initially benefit only a select few. “There are only two APs today—Jane Street and Virtu—that also have corresponding crypto entities,” he noted. “Broker-dealers without crypto capabilities will need to acquire or partner with crypto firms to stay competitive.”