Bitcoin Is Changing Its Tune as Wall Street Decks It Out With Familiar Trappings

For years, bitcoin won by being boring. Investors weren't able to do all that much with it besides buy and hold it. But that was precisely why the world's largest cryptocurrency was valuable.

Bitcoin has been making headlines for years, but the cryptocurrency is finally changing in a big way.

Developers are increasingly building on bitcoin’s base blockchain in unexpected ways, and Wall Street is decking the coin out with all its familiar trappings.

In January, spot bitcoin ETFs began trading, opening the door to more mainstream investors. Last week, options on those spot crypto products finally started to go live on the Nasdaq and New York Stock Exchange. CBOE Global Markets is also set to list its first cash-settled bitcoin ETF options Dec. 2.

Creating this new margin framework around bitcoin means that both retail traders and institutions alike will be able to get more exposure to the asset class relative to how much cash they’re investing.

Collectively, the U.S.-issued spot bitcoin funds hold north of $100 billion in assets under management. Last week, they notched their largest weekly inflows on record, totaling more than $3.1 billion. And according to CoinShares, year-to-date net flows are up to $37 billion versus U.S. Gold ETFs, which drew around $309 million in their first year.

Nearly half of those flows into the spot bitcoin products took place after U.S. interest rates were cut for the first time in four years in September.

Vetle Lunde, head of research at K33 Research, told CNBC there has been record high open interest for futures on the CME derivatives exchange, the way most U.S. institutions currently buy bitcoin futures contracts. But a lot of traders have been waiting for options on spot bitcoin ETFs on major exchanges such as the NYSE and Nasdaq, since it enhances liquidity and offers hedging tools.

Lunde says that demand for leveraged long exposure to bitcoin and ether is climbing, with VolatilityShares’ BTC exposure hitting new all-time highs.

Galaxy Digital’s trading team told CNBC the firm has observed significant volume in BlackRock’s IBIT ETF options, the first to launch on the Nasdaq last week. BlackRock is the largest digital asset manager in the world after it eclipsed Grayscale in August. BlackRock’s bitcoin trust IBIT holds $48.4 billion in bitcoin compared with the $34 billion in its gold trust.

Options on IBIT had a blockbuster debut, with 353,716 contracts traded on its first day, according to Galaxy Digital. The firm noted that the previous most active debut of options trading was when Facebook options went live in 2012 and 360,000 contracts changed hands.

Galaxy sees notable trading activity extending out to January 2027, roughly halfway into Donald Trump’s administration. On the campaign trail, the president-elect had an about-face on bitcoin and went from criticizing digital assets to making big promises to the crypto industry. Bitcoin is up roughly 40% since Election Day, Nov. 5.

“This level of concentrated, long-dated activity reflects investor confidence in the ETF’s long-term growth potential, signaling bullish sentiment for the years ahead,” Galaxy’s trading team told CNBC.

Until now, offshore crypto native platforms such as Binance and Deribit have been the main marketplace for bitcoin derivatives trading. Galaxy told CNBC there is a noticeable volatility premium between Deribit, CME and IBIT, which could present arbitrage opportunities among the varying platforms offering derivatives trading.

On Friday, more than $9 billion in bitcoin options contracts expire on Deribit, which could lead to greater price volatility as the expiration date approaches.

“There’s a ton of leverage in the system right now,” Galaxy Digital CEO Mike Novogratz, a longtime crypto investor, told CNBC’s “Squawk Box” on Friday.

“You look at the funding rates to do crypto in our market, right? The perpetual market, as high as they’ve been, the basis is high,” Novogratz said. “The crypto community is levered to the gills, and so there will be a correction.”

Bitcoin was within striking distance of $100,000 on Friday but retrenched over the weekend. The cryptocurrency is currently trading at around $95,000.