Wall Street now holds the chips on Bitcoin trading, hedging and pricing

Bitcoin isn’t being driven by crypto-native traders anymore. The ones calling the shots now wear suits, not hoodies.

What started off on offshore platforms is now being controlled by institutional traders on regulated US soil. Wall Street has taken over. And the bros are using traditional tools to model it, hedge it, and set its price like they would for any other asset.

According to Bloomberg, a huge chunk of this control comes from BlackRock’s iShares Bitcoin Trust, or IBIT. With $86 billion in assets under management, IBIT is now the largest Bitcoin ETF in the world.

But see, the real story isn’t actually the fund itself. It’s the options market that’s grown around it, one that’s now so active that traders are pressuring regulators to lift trading limits.

IBIT’s open interest in options has more than tripled this year to $34 billion, and daily trading volume now averages $4 billion. That beats most credit and emerging markets ETFs. Only the biggest equity, gold, and small-cap ETFs trade more actively.

IBIT changes how Bitcoin’s risk is priced and traded

Rocky Fishman, founder of Asym 500, said, “It’s highly unusual for an ETF to develop an option market of this magnitude ever, let alone eight months after launch.” IBIT’s rapid growth has made it the main venue for risk pricing in the US Bitcoin ETF market.

Regulatory filings show that institutional holders of IBIT nearly doubled since December. IBIT also sees more options trading than any other Bitcoin ETF, even though it holds just a little over half the assets across the group.

This isn’t about speculation anymore, folks, this is risk management. Kevin de Patoul, CEO of market maker Keyrock, said institutional players stayed away from crypto options for years because they were only available offshore.

Now that the market has onshore options and spot ETFs, institutions have the access they need to use familiar strategies. “Now, with spot ETFs and US-listed options, institutions finally have an access point that fits their playbook,” Kevin said.

Traders are also behaving differently. Greg Magadini, director of derivatives at Amberdata, explained that the shrinking difference between call and put prices on IBIT options, even when Bitcoin isn’t rallying, means more investors are using puts to hedge against losses. This flow has a natural dampening effect on volatility and prevents panic selling.

This new behavior is also showing up in when and where Bitcoin is being traded. US hours are now responsible for 57.3% of Bitcoin-dollar trades, up from 41.4% in 2021. And nearly half of spot Bitcoin trading volume flows through the twelve US-listed ETFs, based on FalconX Research.

Offshore trading lags behind as regulators stall IBIT’s next move

Deribit, the dominant offshore exchange for derivatives, is still in the picture, but IBIT is closing in fast. For now, the two function as isolated markets. Le Shi, managing director at Auros, says the lack of a unified collateral system and limited capital mobility make it hard to run large trades across both venues. “There’s no unified collateral system yet,” he said. “But stablecoins could eventually help bridge the gap.”

Coinbase, however, is already making moves. In May, it acquired Deribit for $2.9 billion. Luuk Strijers, Deribit’s chief executive, confirmed that the firms are working on linking their platforms. He said the effort could eventually allow shared collateral, common risk frameworks, and cross-platform exposure netting, which would make bigger trades more practical and reduce friction between markets.

But there’s a catch. IBIT’s rapid rise has hit a regulatory wall. The current position cap on IBIT options is 25,000 contracts, a restriction meant to control risk. But it’s limiting how much asset managers can deploy systematic strategies.

A report from Cboe Global Markets said the cap keeps risk exposure well below what’s possible with other ETFs like MBTX and CBTX.

In January, Nasdaq asked the SEC to raise the cap tenfold. The agency has until September to respond. Robbie Mitchnick, head of digital assets at BlackRock, said, “We’ll likely see a non-trivial increase in option volumes from current levels once those constraints are lifted.”

Even with the cap in place, Wall Street hasn’t slowed down. Bitcoin is now treated like any other asset it was meant to squash. “Eventually, all assets will be digital,” Kevin said. “And what we now call crypto will just be another part of the financial system; priced, hedged, and risk-managed like everything else.”