The emergence of new investment wrappers and trading infrastructures that allow new investors to access Bitcoin has been a critical ingredient in its success. The recent launch of spot BTC-based ETFs has accelerated this trend.

We haven’t fully appreciated the impact of these changes on the Bitcoin market.

As this market structure matures, we can expect a reduction in volatility. We will examine how two important shifts in the launch of spot ETFs can facilitate this change.

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Does the ETF fix serve as a market price reference?

The recent ETF launches are no secret. They have led to a significant increase in spot BTC trading volume. This volume increase is disproportionately concentrated between 3 pm and 4 pm. ET or near the ETF fix price.

The chart below shows daily BTC volume in 30-minute buckets, starting between 3:00 pm and 3:30 pm. ET for the top trading pairs. These two buckets of activity, which used to account for less than 5% in total daily volume, now represent 10-13%.

The ETF Fix allows investors to consolidate large trades at a specific time. This reduces the market impact of these large trades and their overall volatility.


A new options market around ETFs?

The SEC could take anywhere between one and eight months to evaluate these applications. There are also wrinkles in the clearing and settlement processes of all three exchanges. The SEC could take between 1 and 8 months to evaluate these applications, and there are wrinkles in their clearing and settlement process.

If this new option class is approved, the Bitcoin options market could see a major boost. The Bitcoin options market currently is split between investors trading on offshore exchanges that are inaccessible to U.S. citizens or platforms only accessible to large institutions such as CME. The options market could be significantly expanded by allowing options based on BTC spot ETFs.

The BTC options market will continue to grow in importance, even with the huge growth it experienced last year. It is possible to reduce volatility by developing an options market. This allows investors to use a wider range of investment strategies, and makes the most liquid ETFs more liquid. This also increases the importance of price-action drivers such as exchange expirations, and dealers’ positioning.


The Bitcoin Revolution meets the 20-Year Legacy of ETFs

The ETF revolution is now benefiting the bitcoin market. The launch of spot BTC-based ETFs will continue to increase investor participation.

After more than two weeks of launch, the ETFs for spot bitcoin are already averaging daily trading volumes in excess of $1.5 billion. This volume represents about 20% of the daily bitcoin trading on a good market day.

We expect that as continues to innovate in crypto ETFs, trading activity will continue. This should help to reduce Bitcoin’s volatility, and also contribute to maturing this emerging asset class.

Benjamin Schiller is the editor.