Bitcoin derivatives: NASDAQ intends to enter the market for Bitcoin Index Options trading

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The U.S. technology exchange NASDAQ plans to enter the trading of Bitcoin derivatives.

At the end of August 2024, the U.S. technology exchange NASDAQ filed an application with the Securities and Exchange Commission (SEC) for the approval of Bitcoin Index Options. In a press release, the exchange announced that the application was submitted in collaboration with CF Benchmarks, and the requested derivatives would be traded under the symbol “XBTX.” “We are proud to partner with CF Benchmarks on the NASDAQ Bitcoin Index Options, offering market participants trusted investment opportunities to access the digital asset ecosystem,” said Greg Ferrari, Vice President and Head of Exchange Business Management, as quoted in the NASDAQ press release. “This collaboration is another step in combining the innovative crypto landscape with the resilience and reliability of traditional securities markets and would mark an important milestone in the ongoing maturation of the digital asset market.”

NASDAQ follows NYSE – almost

With the application for Bitcoin Index Options, NASDAQ follows the example of the New York Stock Exchange (NYSE). Earlier in the year, the NYSE had announced plans to list Bitcoin Options, though there was no mention of index options. However, both exchanges are still awaiting approval from the SEC. Should the SEC approve NASDAQ’s application, it would be another step toward greater integration of Bitcoin into the traditional financial market. Bitcoin Index Options could help reduce the cryptocurrency’s volatility and attract institutional investors to the market.

Bitcoin Options vs. Bitcoin Index Options

Bitcoin Options and Bitcoin Bitcoin Index Options are both derivative financial instruments that grant the holder the right, but not the obligation, to buy or sell Bitcoin at a specific price by a certain date. However, there is a key difference: Bitcoin Options are based on the current Bitcoin price, whereas Bitcoin Index Options track a Bitcoin index. This index, in turn, aggregates the prices of Bitcoin from various cryptocurrency exchanges.

Advantages of Bitcoin Options

Both instruments offer similar advantages to market participants. For example, investors can hedge their existing Bitcoin holdings to protect against the inevitable price fluctuations of cryptocurrencies. Additionally, options provide the opportunity to use leverage, which can amplify potential gains, though it also increases the risk of losses. Even crypto skeptics could benefit from Bitcoin Options and Bitcoin Index Options by speculating on declining prices of the digital gold.

Not all that glitters is gold?

Nevertheless, the crypto market is still largely unregulated, though this could change. Regulatory efforts are emerging worldwide and could slow down the crypto market in the future. Thus, even after a potential approval of the derivatives by the SEC, investors may still face legal uncertainties and additional risks.