Nasdaq seeks to quadruple BlackRock Bitcoin options limit…"More institutional money will come in"

Nasdaq's International Securities Exchange (ISE) has proposed raising the position limit for options on BlackRock's Bitcoin spot ETF, iShares Bitcoin Trust (IBIT), to four times the current level, prompting forecasts that the 'institutionalization' of the Bitcoin derivatives market could accelerate.

According to Decrypt on the 27th (local time), Nasdaq ISE requested in a rule change filing submitted to the U.S. Securities and Exchange Commission (SEC) on the 21st that the position and strike price limits for IBIT options be raised from 250,000 contracts to 1,000,000 contracts, placing them in the same tier as large names such as Apple, NVIDIA, and S&P 500 ETFs. It also asked that virtually no limit be set on custom-structured physical-delivery FLEX options, stating the intention to pull demand remaining in the over-the-counter (OTC) market into a transparent listed market.

The exchange noted that IBIT's market capitalization has grown to $86.2 billion and average daily trading volume to 44.6 million shares, and that the current limits "constrain normal hedging and management strategies." Lai Yuen, an investment analyst at Fisher Eight Capital, said the move "makes it easier to design structured products based on IBIT and increases institutional capital that can be allocated to Bitcoin ETFs," assessing it as positive for long-term IBIT inflows.

Tim Sun, chief researcher at HashKey Group, pointed to Nasdaq already pursuing a second limit increase and analyzed that "institutional demand for Bitcoin options continues to expand." He explained that in particular removing limits on physical-delivery FLEX options "is a mechanism that allows large asset managers and banks to build larger hedge positions in a regulated exchange environment rather than in private OTC trades."

There is also a cautious view that the market impact will be gradual. Derek Lim, head of research at Kaladan, said, "Given the scale of Bitcoin held by BlackRock, even using the increased limit would effectively mean about $5.3 billion, roughly 8% of the total, would be used for option hedges," adding, "The figure itself is conservative, but it is significant in institutionally supporting behavior that treats Bitcoin as an allocable asset."

On volatility, some predict that annual realized volatility could fall by about 0.5~1% percentage points over the next 6 to 18 months. Lim said, "If the risk premium shrinks, the short-term price stimulus may be limited, but in the medium to long term it is a factor that creates an environment where larger amounts of capital can enter without strain." Bloomberg's Eric Balchunas also said, "IBIT options are already the world's largest Bitcoin options market by open interest," and added, "This move could be a turning point that gradually makes Bitcoin traded like a traditional macro asset."