In January 2024, the three leading U.S. stock exchanges—the New York Stock Exchange (NYSE), Arca, CBOE, and Nasdaq—submitted applications to the Securities and Exchange Commission (SEC) seeking approval to list Bitcoin ETF options. Initially, the SEC maintained a cautious stance on Bitcoin, and external feedback was not promising, with concerns about the potential risks of offering options to retail investors.
However, the regulatory environment has since evolved. On August 8, 2024, Cboe submitted an amended application to the SEC, addressing issues such as market manipulation and position limits in greater detail. This development was supported by a report from Bloomberg Intelligence analyst James Seyfert, who noted that the “confirmed movement on Bitcoin ETF news” indicates that the SEC is likely to provide constructive feedback to the exchanges.
Bitcoin ETF Options: A New Market Emerges
While U.S. investors have been able to trade options on Bitcoin futures ETFs, these instruments generally underperform their Bitcoin ETF counterparts due to the costs associated with rolling over monthly futures contracts. Despite this, the options market has flourished, with open interest surpassing $3.25 billion as of August 9, 2024.
Meanwhile, Bitcoin spot ETFs have amassed a much larger asset base, exceeding $58 billion as of the same date. If the performance of Bitcoin futures ETF options is any indication, a new Bitcoin options market valued at around $45 billion is anticipated to emerge, potentially providing a significant boost to the overall cryptocurrency financial system.
Ethereum ETF Options on the Horizon
The regulatory momentum surrounding the approval of Bitcoin ETFs is expected to extend to Ethereum as well. In a filing dated August 6, 2024, Nasdaq requested permission from the Securities and Exchange Commission (SEC) to list options on BlackRock’s iShares Ethereum Trust (ETHA). This move indicates that the regulator’s growing acceptance of crypto-based options is expanding beyond Bitcoin to encompass the broader digital asset landscape.
Institutional Adoption and the Role of Options
Options trading is pivotal to institutional adoption, particularly in the highly volatile cryptocurrency market. Financial advisors, who manage a significant portion of the $9 trillion ETF market, use options to protect their clients’ portfolios from sharp price fluctuations. A 2023 survey by Financial Planning Journal found that over 10% of advisors were actively using options to manage client assets.
Options are also integral to hedge fund strategies, such as the “covered strangle” approach advocated by investment research firm 10x Research. With Morgan Stanley, the world’s largest financial advisory firm, authorizing its 15,000 advisors to offer clients spot Bitcoin ETFs, the introduction of options is expected to drive substantial crypto investment flows into the market.
Expected Launch Timeline
Despite bureaucratic challenges, industry experts remain cautiously optimistic about the timeline for Bitcoin ETF options. Bloomberg Intelligence predicts that Bitcoin ETF options will launch in the fourth quarter of 2024, likely before November, spurred by the upcoming U.S. presidential election.
Regarding Ethereum ETF news, the regulatory momentum is expected to follow a similar trajectory. Nasdaq’s recent filing for permission to list options on the BlackRock Ethereum ETF serves as a promising indicator.
Conclusion
The anticipated launch of Bitcoin and Ethereum ETF options marks a significant milestone in the evolution of the cryptocurrency market. By equipping institutional investors with the tools to manage risk and enhance their exposure, these options are set to usher in a new era of cryptocurrency development and market maturity.
As regulators continue to embrace crypto-based options trading and industry stakeholders collaborate to overcome remaining bureaucratic hurdles, the future of the digital asset landscape looks increasingly promising. The launch of these options could unlock billions of dollars in new investment flows, potentially reshaping how the world engages with cryptocurrency.
