How will the launch of spot ETFs curb Bitcoin volatility?

author:David Lawant & Vivek Chauhan, Coindesk

Compiled by: Felix, PANews

One of the key factors in Bitcoin’s success has been the emergence of new trading infrastructure and investment “wrappers” that have opened the door to new investors. This trend is accelerating with the recent launch of spot Bitcoin ETFs.

Beyond liquidity providers and trading platforms, the market has yet to fully appreciate how these massive changes will alter the Bitcoin market structure.

As the market structure matures, volatility can be expected to decrease. This article will explore how several important shifts related to the launch of physical ETFs have contributed to this change.

ETF pricing as a reference to market price?

The recent launch of ETFs has undoubtedly significantly increased Bitcoin trading volume. It’s worth noting that most of the increase in trading volume occurs between 3 and 4 p.m. ET, or close to the time the ETF is priced.

The chart below shows the percentage of daily Bitcoin trading volume during the 30 minutes starting at 3pm ET and 3:30pm ET. Volume in these two sessions, which typically account for less than 5% as a percentage of the total daily volume, now accounts for 10%-13%.

By providing a transparent and consistent reference price that is increasingly recognized by market participants, ETF pricing allows investors to aggregate large transactions at the same time, thereby reducing their market impact and overall market volatility.

The ETF options market matures

All three currently listed spot Bitcoin ETFsexchangeBoth have asked the SEC to allow them to list options on such ETFs. It can take anywhere from 1 to 8 months for the SEC to evaluate these applications, and there are problems with its clearing and settlement processes.

If these options are approved for listing, the Bitcoin options market could receive a significant boost. The Bitcoin options market is currently divided into two types, one is offshore which is inaccessible to US usersexchangeTrade on a platform that only large institutions like CME have access to. Allowing options based on spot Bitcoin ETFs could significantly expand the options market beyond these two markets.

Overall, even though options trading has improved over the last yearXiaobai NavigationGrowing significantly (Bitcoin and Ethereum options on Deribit are worth $23 billion, an all-time high), the Bitcoin options market should continue to grow in importance in 2024. More mature options markets can result in lower volatility, as they allow investors to implement a wider range of investment strategies and make ETFs more liquid. In addition, the importance of options expiration and market makers, etc., in influencing price movements is expanded.

20 years of ETF tradition meets the Bitcoin revolution

Happily, the ETF revolution is now benefiting the Bitcoin market. The launch of spot Bitcoin ETFs has and may continue to attract investor participation, perhaps similar to the launch of gold ETFs in the early 2000s.

More than two weeks after its launch, the spot Bitcoin ETF’s daily trading volume has exceeded $1.5 billion. This trading volume is about 20% of the trading volume when the Bitcoin spot market is good.

As crypto ETFs continue to innovate, ETF-related trading activity is expected to continue, which will dampen Bitcoin’s volatility and help this emerging asset class mature.

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