Bitcoin’s trademark volatility may be entering a new phase following a recent U.S. Securities and Exchange Commission (SEC) decision. The regulator has raised position limits on options for most bitcoin ETFs, including BlackRock’s IBIT, allowing traders to hold up to ten times more contracts than before. According to NYDIG Research, this change could encourage large-scale covered call strategies, which generate income by selling upside potential, naturally dampening price swings.

The move coincides with the SEC’s approval of in-kind redemptions for spot bitcoin ETFs, further enhancing liquidity and trading flexibility. NYDIG notes that covered call strategies work best at scale, and increased position limits open the door to more aggressive and sustained options activity.

Bitcoin’s volatility has already been trending lower. Deribit’s BTC Volatility Index (DVOL) has dropped from around 90 to 38 over the past four years, though it remains higher than most traditional assets like bonds and equities. This persistent volatility attracts traders seeking to harvest income from market swings but can be a barrier for institutions requiring stable exposure.

NYDIG analysts suggest that as volatility declines, bitcoin could become more attractive for institutional portfolios seeking balanced risk allocation — potentially driving stronger spot demand. Ray Dalio, a pioneer of risk-parity strategies, recently recommended a 15% allocation to gold and cryptocurrencies amid rising global debt levels.

If this “feedback loop” of falling volatility and increased institutional buying takes hold, bitcoin’s market could see sustained demand growth, marking a shift toward broader acceptance in traditional investment strategies.