Article Featured in Nasdaq, Written by Rob Nelson.

In a recent discussion, John Divine of BlockFills described how professional trading firms took advantage of new spot bitcoin ETFs.

Exploring the recent evolution in bitcoin’s market dynamics, Roundtable anchor Rob Nelson engaged with John Divine, head of digital OTC trading at BlockFills, to shed light on the cryptocurrency’s current pricing trends and the impact of new spot bitcoin exchange-traded funds (ETFs).

Divine provided an in-depth analysis of the market’s reaction to these new products, describing it as largely anticipated by those deeply embedded in the trading community. He attributed the “sell the news” phenomenon to several strategic moves by traders, particularly focusing on the dislocation between bitcoin spot prices and futures contracts that emerged around the ETF announcement.

Divine also highlighted a significant aspect of the market’s behavior: the basis trade, where the spread between spot bitcoin and January futures contracts notably widened, presenting a lucrative opportunity for professional trading companies. By purchasing spot bitcoin and simultaneously selling the futures contracts, these entities were able to capitalize on the demand for leverage, thereby injecting liquidity into the market and moderating sell-side pressure.

Additionally, the conversation touched upon the strategic use of options by investors holding bitcoin. With the surge in demand for leverage leading up to the ETF launch, call option premiums expanded, allowing bitcoin holders to engage in covered call strategies effectively. This move enabled investors to secure put options at no additional cost, providing a hedge against potential downturns in the cryptocurrency’s value.

Divine also pointed out the inherent delays associated with the adoption of such a novel financial product. Challenges include the availability of the ETF to clients by various venues and the need for analysts and financial advisors to familiarize themselves with the cryptocurrency asset class to offer informed guidance to their clientele.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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