On January 7, 2026, Nasdaq submitted a rule change application to the U.S. SEC, which officially took effect this Wednesday, removing the original 25,000 contract position limit for Bitcoin and Ethereum spot ETF options. The core of this decision is to allow these two types of crypto asset ETF options to enjoy the same treatment as other commodity fund options under the regulatory framework, no longer being "differentiated" from others. However, behind the narrative of regulatory equalization, the market quickly realized another layer of tension: when the limit is removed, the institutional leverage space is exponentially expanded, leading to either a deeper liquidity pool or a more intense cycle of high-leverage volatility?

Removal of Position Limits: Real-World Impact of Rule Details

● Historical Constraints: The previous 25,000 contract position limit meant that a single market participant's position in Bitcoin or Ethereum spot ETF options was rigidly locked within a medium-scale range. For participants primarily consisting of retail and small institutions, this limitation was not strongly felt, but for large institutions and professional market makers managing billions of dollars, it directly compressed their space for large-scale hedging, arbitrage, and structured product design, forcing some capital to shift to over-the-counter derivatives or overseas trading platforms.

● Effective Rhythm: According to public information, this rule adjustment was submitted on January 7, 2026, and officially took effect this Wednesday, with the SEC simultaneously opening a public comment period. In terms of process, the rule is first implemented in a "trial + soliciting opinions" manner, allowing the market to provide feedback on potential issues in a real trading environment, while the regulatory body retains the authority to make minor adjustments or even withdraw before final confirmation, creating a buffer for this "release."

● Observation Window: The SEC is expected to provide a final decision by the end of February this year, which means the current stage is essentially a time-bound observation and game window. During this period, regulators will monitor trading volume, position concentration, and volatility curves, while institutions will test the flexibility of the rules with real funds, leading the market into a dynamic balance period of "testing the waters while voting."

From Marginal to Mainstream: Regulatory Position Migration of Crypto ETFs

● Regulatory Treatment Alignment: The direct effect of the rule change is to align Bitcoin and Ethereum spot ETF options, in terms of regulatory language and practical operation, with other commodity fund options. Previously, crypto-related products were long labeled as "special risk assets" in details such as position limits, margin requirements, and information disclosure, and the removal of the limit means that regulators no longer deliberately view them as a "second-class" category of derivatives in terms of position size control.

● Call for Equal Treatment: Multiple institutions and market commentators have emphasized that the removal of position limits "will allow crypto ETF options to enjoy the same treatment as other commodity options." Behind this discourse is the substantial narrowing of the regulatory gap between traditional finance and crypto assets—from initial experimental tolerance to gradually unifying standards on key risk parameters, crypto assets are migrating from "regulatory experiments" to "conventional asset classes."

● Equal Rights and Participation: For compliant institutions, the regulatory equalization brings not only symbolic significance but also a synchronous enhancement of willingness to participate, product design space, and the richness of hedging tools. When position limits align with other commodities, institutions can allocate Bitcoin, Ethereum, and traditional commodities within the same risk management framework, integrating them into a unified options strategy portfolio, gaining greater scale and higher precision in operations ranging from volatility trading, cross-commodity spread hedging, to structured yield products.

The Leverage Temptation Above $90,000 for Bitcoin

● High Levels and Sentiment: During the same period of rule adjustment, Bitcoin briefly broke through $90,000, setting a new historical high. The absolute price level and extreme volatility have increased market demand for leverage tools—whether for bulls hoping to "add to their positions" or institutions attempting to hedge risks at high levels, there is a greater tendency to amplify directional gains or compress drawdowns through options rather than risking everything directly in spot or simple perpetual contracts.

● Upgraded Leverage Play: When position limits are removed, large funds can construct larger directional bets and volatility trading combinations on Bitcoin and Ethereum spot ETF options. For example, institutions can sell large call options at high levels to collect premiums while buying deep out-of-the-money puts to hedge tail risks, or use cross-period and cross-commodity options structures to speculate on volatility declines. Such complex strategies were difficult to fully deploy under the 25,000 contract limit, but now have a broader stage.

● Chain Reaction Risks: However, high prices combined with greater leverage space also increase the probability of violent volatility and cascading liquidation reactions. When large option positions are forced to adjust or hedge in a short time, market makers may conduct large hedging trades in the spot and futures markets, triggering rapid price surges or crashes. If volatility further triggers margin calls and passive liquidations, a feedback loop between "options—spot—leverage trading platforms" could escalate into a flash crash or explosive market movement.

Strengthening Compliant Custody: BitGo and the Puzzle of Infrastructure

● Custody Signals: Against the backdrop of this regulatory change, BitGo has performed strongly since its listing on the NYSE, seen as an important signal of capital recognition for the compliant custody track. For large institutions, custody security and compliance levels are prerequisites for their large-scale entry into the crypto asset market, and BitGo's performance in the capital markets indirectly reflects the rising confidence of traditional funds in this infrastructure segment.

● From Observation to Depth: The lifting of options position limits, along with the maturity of custody and clearing infrastructures, essentially constitutes two links on the same path of institutional participation. Previously, even if options tools were available, the lack of compliant custody and clearing systems would keep many institutions at the stage of "small experimental allocations"; as custody, trading, and settlement chains gradually improve, combined with the loosening of regulatory rules, institutions are more motivated to upgrade trial funds to systematic allocations.

● Amplified Strategy Combinations: With more compliant custody and trading infrastructures in place, institutions can build larger and more refined multi-strategy combinations on crypto ETF options, such as: using Bitcoin spot ETFs for long exposure, dynamically hedging with options; using Ethereum ETF options in conjunction with DeFi-related exposures for correlation hedging; even incorporating crypto ETF options into an overall asset allocation model, conducting cross-asset volatility arbitrage with commodities and stock index options, all based on the dual premise of "reliable custody + clear rules."

The Balancing Act of Regulators: Liquidity Dividends and Bubble Shadows

● Liquidity and Pricing: From the regulator's perspective, the most direct benefit of lifting position limits is enhancing market liquidity and price discovery efficiency. Greater holding capacity attracts market makers and arbitrage funds, tightening option market quotes, increasing depth, and making prices respond more swiftly to information. Meanwhile, the improvement of the derivatives market helps form a more complete implied volatility curve, providing clearer risk premium signals for spot pricing.

● Risks and Choices: On the other hand, regulators' concerns about systemic risks and speculative bubbles have not disappeared. The expansion of leverage space theoretically amplifies pro-cyclical behavior and herd effects. However, after repeated considerations, regulators still choose to move towards a path of "regulatory equalization": rather than setting unique high walls on a single asset class and pushing risks into over-the-counter and gray areas, it is better to enhance transparency and monitoring capabilities under unified rules, allowing risks to operate within a visible range and managing them through capital requirements, stress tests, and other macro-prudential measures.

● The Game of the Comment Period: The current public comment period serves as a formal stage for the power struggle between traditional institutions, the crypto industry, and cautious regulators. On one hand, institutions and industry participants hope to solidify the reform achievements of "equal treatment" and avoid policy regression; on the other hand, more cautious voices emphasize the spillover risks of high-volatility assets, calling for more protective thresholds. The resolution formed by the end of February will largely delineate the boundaries of crypto derivatives within the compliance framework for the coming years.

Countdown to the End of February: The Market Will Provide Answers First

In the window between the rule's effectiveness and the final decision, the new regulations have opened a new window and leverage channel for the comprehensive integration of crypto assets into the traditional financial system. Bitcoin and Ethereum spot ETF options are gradually moving from "special treatment experimental products" to tools with status similar to other commodity options, reflecting a certain consensus between regulators and the market on the long-term existence of crypto assets. For institutions, this is an opportunity to redesign strategy frameworks and deeply embed crypto assets into asset allocation and risk management systems.

Before the final decision is made, institutions are likely to position themselves in advance through the options market, testing the regulatory boundaries: expanding the scale of options strategies while observing regulatory and market feedback, and maintaining flexibility in position structures and hedging methods to quickly adjust to any directional changes after the end of February. For ordinary investors, during this stage, it is more crucial to track changes in options trading and position structures rather than just focusing on the ups and downs of Bitcoin spot prices—who is using how much leverage and what structures they are betting on will reveal the true attitude of funds earlier than the price itself.

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