Bitcoin’s volatility may be transforming due to a recent decision by the Securities and Exchange Commission (SEC). The SEC has raised position limits on options for bitcoin exchange-traded funds (ETFs), which could help stabilize price fluctuations. This move encourages investment strategies, like covered call selling, that can limit potential gains while providing steady income, according to insights from NYDIG Research.
The increased position limits allow traders to hold ten times more contracts than previously permitted, facilitating more substantial options trading activity. These covered call strategies are particularly effective when scaled, as they generate yield from existing bitcoin holdings by selling upside exposure, which can moderate price movements across large portfolios.
Although bitcoin’s volatility is on a downward trend—evidenced by Deribit’s BTC Volatility Index showing a reduction from around 90 to 38 over the past four years—it still remains more volatile compared to traditional assets such as bonds and stocks. This characteristic makes bitcoin appealing to those seeking income from market fluctuations, but it poses risks for institutions that favor stability.
As volatility decreases, bitcoin could become a more viable option for institutional portfolios that aim for balanced risk exposure. This shift may enhance spot demand for the cryptocurrency. Analysts at NYDIG noted that falling volatility could lead to a fulfilling cycle of increased spot buying.
Moreover, notable investors like Ray Dalio have begun advocating for portfolios that include both gold and cryptocurrency, suggesting a 15% allocation towards each as a buffer against rising debt levels in the U.S. The combination of declining volatility and rising spot demand could act as a significant driver for sustained interest in the cryptocurrency market.
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