BlackRock’s spot Bitcoin ETF, is set to strengthen its already dominant market position after a key regulatory decision by the U.S. Securities and Exchange Commission (SEC). On Tuesday, the SEC approved a tenfold increase in the number of allowed options contracts for all ETFs with options, including IBIT.

The new position limit has been raised from 25,000 contracts to 250,000 contracts. This change does not apply to every Bitcoin ETF, notably, the Fidelity Wise Origin Bitcoin Fund (FBTC), the second-largest Bitcoin ETF, has been excluded.

According to Greg Cipolaro, global head of research at NYDIG, this regulatory shift is likely to “widen the monstrous lead” that BlackRock already holds over competitors in the Bitcoin ETF space. With $85.5 billion in assets under management (AUM), IBIT currently holds four times more than FBTC, which has $21.35 billion.

Options Expansion May Tame Volatility

Beyond the competitive landscape, the SEC’s move is expected to have broader market implications. Cipolaro explains that the higher options cap will enable more robust trading strategies, such as covered call selling, a strategy where investors hold the asset and sell call options to earn premiums. This can reduce downside risk but limits upside gains.

Crucially, this may lead to lower volatility in Bitcoin’s price. Reduced volatility can make Bitcoin more attractive to institutional investors who seek balanced, risk-adjusted portfolios. According to Cipolaro, this change could create a powerful feedback loop: as Bitcoin becomes less volatile, more institutions may buy in, further stabilising the market.

Regulatory Shift Opens the Door to Spot Redemptions

The SEC’s decision wasn’t limited to options alone. On the same day, it approved in-kind creation and redemption for crypto ETFs. This means that ETF shares can now be created or redeemed using the actual underlying crypto like Bitcoin, rather than through cash exchanges.

This feature has been long sought by ETF issuers, as it reduces costs and enhances efficiency. More importantly, it reshapes the market infrastructure, allowing for smoother investor access and potentially improved liquidity.

However, this change also creates a divide between market participants. Only a few financial institutions known as Authorised Participants (APs) are equipped to handle these in-kind transactions. At present, only two APs, Jane Street and Virtu, have affiliated crypto trading entities that allow them to engage in both crypto and ETF markets simultaneously.

Competitive Pressure Mounts on Other ETFs

With IBIT getting full access to expanded options trading and in-kind redemptions, the competitive pressure is rising on other Bitcoin ETFs. Fidelity’s FBTC, for instance, does not currently benefit from the new options limits. That restricts its ability to offer flexible and appealing trading strategies to investors.

Furthermore, broker-dealers who act as APs but lack crypto infrastructure are now at a disadvantage. As Cipolaro puts it, they “will likely not be able to take advantage of arbitrage activities or offer competitive pricing.” This creates strong incentives for traditional financial players to either acquire or partner with crypto-native firms.

Such consolidation or strategic alignment could reshape the crypto ETF landscape, creating a new class of hybrid institutions equipped to operate across both traditional finance and digital assets.

BlackRock’s Lead Could Become Unstoppable

With regulatory advantages stacking up in BlackRock’s favour, its dominance in the Bitcoin ETF market seems poised to grow. The SEC’s decision to expand options limits and allow in-kind redemptions gives IBIT more flexibility, lower costs, and higher appeal to institutional investors.

As Bitcoin volatility potentially declines and spot demand increases, BlackRock is positioned to ride the next wave of institutional crypto adoption. Unless competitors like Fidelity adapt quickly, both in terms of regulation and infrastructure, they may find it increasingly difficult to catch up.