Nasdaq is driving the development and adoption of digital asset trading with its first-ever Bitcoin index options. On today, 8/27 Nasdaq filed with the Securities and Exchange Commission (SEC) to list and facilitate trading of Nasdaq Bitcoin Index Options (XBTX).
If approved, Nasdaq will be launching these options in partnership with CF Benchmarks who will manage the index that underpins XBTX. This collaboration aims to offer a more secure, regulated, and familiar method of trading Bitcoin options, a strategy that has gained significant popularity in recent years.
“We’re creating a place for investors to confidently put their money into this innovative asset class,” said John Black, Head of Index Options at Nasdaq.
The Thinking Behind the Filing
While Bitcoin index options trading is not new, what distinguishes Nasdaq’s proposed offering is its strong roots in trusted financial systems.
“We’re taking out a lot of the hindrances going to a crypto exchange that’s not regulated in the same way a listed exchange is,” said Black. “That’s far more appealing to investors.”
By bringing Bitcoin index options under the Nasdaq umbrella, investors will benefit from greater security, regulatory clarity and professionalism, Black continued. Nasdaq Bitcoin Index Options are set to offer investors the potential opportunity to employ traditional options investment strategies that enable hedging and risk management while also gaining exposure to the digital assets landscape, said Black.
The product, if approved, will also help streamline the trading process. Black explained that customers with retail accounts at well-known brokerages will be able to use their current accounts to access these options.
Black said that Nasdaq’s existing infrastructure in this space—listing other types of index options and the recent launch of a Bitcoin spot ETF run by BlackRock—made the decision to pursue XBTX a natural one.
“Because we have such a footprint in equity options, ETF options, and index options, we think that this is the best approach to provide the opportunity for anybody trading Bitcoin to trade a listed derivative, as well as open the door to further product development,” he said.
How It Would Work
By tracking the CME CF Bitcoin Reference Rate – New York Variant (BRRNY), XBTX will offer investors exposure to Bitcoin in a way that helps maximize upside potential while controlling downside risk.
With these index options, holders will have the ability to buy or sell the value of the underlying Bitcoin index at a predetermined expiration date. Investors pay a premium upfront to lock in their position, and the settlement is based on the value of the BRRNY at expiration.
CF Benchmarks has worked with Nasdaq to structure the settlement value to be 1/100th of the BRRNY at expiration. This smaller notional price should allow more investors, in particular retail traders, to engage with Bitcoin options.
“Spot options settling to BRRNY will give investors the confidence to deploy more nuanced ways to gain exposure to the largest digital asset and will complement the spot ETFs that have already proved so popular with investors,” explained Sui Chung, CEO of CF Benchmarks.
The product will have a European-style structure, meaning that the options can only be exercised at expiration.
A Maturing Digital Asset Ecosystem
The move into Bitcoin index options underscores Nasdaq’s stewardship of the dynamic digital asset market.
“This collaboration further combines the innovative crypto landscape with the resiliency and reliability of traditional securities markets and would mark a significant milestone in expanding the maturation of the digital assets market,” said Greg Ferrari, vice president and head of exchange business management at Nasdaq.
Over the past few years, the cryptocurrency space has seen an influx of institutional interest, with asset managers and other financial professionals seeking to integrate digital assets into more traditional portfolios.
“Bitcoin has been the standard,” Black explained. “Our goal is to create a financial architecture around Bitcoin—with ETFs, indexes and options—that pushes it over the goal line to widespread legitimacy.”
By leveraging its established and reliable technology architecture, Nasdaq is a stable bridge between the world of cryptocurrencies and traditional securities markets.
“Speed and volatility are fundamental to the world we live in,” said Black. “Nasdaq helps investors weather this by giving them a reliable platform through which they can manage exposure to risk and volatility.”
