After months of inactivity, applications to list options on spot Bitcoin exchange-traded funds (ETFs) are finally gaining attention from regulators. Expect BTC ETF options to start trading on United States exchanges this year, with options on Ethereum ETFs soon to follow.
Options are contracts that grant the right to buy or sell an underlying asset at a certain price. They serve as attractive hedging instruments and are popular with speculators. Adding options trading is crucial for institutional adoption, especially with highly volatile crypto ETFs.
Regulators Warming Up to Bitcoin ETF Options
In January, the three US equities exchanges that list spot BTC ETFs — the New York Stock Exchange (NYSE) Arca, Cboe, and Nasdaq — asked the Securities and Exchange Commission (SEC) for permission to list options on those funds. The SEC initially remained silent on the applications, and outside input was not encouraging.
However, the SEC is now showing signs of progress. On Aug. 8, Cboe filed an amended application to the SEC, addressing issues such as market manipulation and position limits in greater detail. Bloomberg Intelligence analyst James Seyffart believes there is "definitely some movement on Bitcoin ETF options" and that the SEC likely provided feedback.
Bloomberg predicts spot BTC options will go live in the fourth quarter of 2024, likely before November due to election-year pressures on the SEC. Spot ETH ETFs are expected to follow suit, with Nasdaq asking the SEC for permission to list options on BlackRock's iShares Ethereum Trust (ETHA) on Aug. 6.
Creating a New Market
Currently, US investors can trade options on Bitcoin futures ETFs, which generally underperform spot market equivalents due to the cost of rolling over monthly futures contracts. Despite this, the market for these options is thriving, with open interest exceeding $3.25 billion as of Aug. 9.
Spot BTC ETFs command a vastly larger asset base of more than $58 billion as of Aug. 9. If the options on BTC futures ETFs are any guide, a nearly $45 billion new BTC options market is waiting to be born.
A Milestone for Mass Adoption
Options are crucial market infrastructure and mark an important milestone on the road to mass crypto adoption. Financial advisors rely on options to safeguard against sharp market movements, and more than 10% of advisers actively used options to manage client portfolios as of 2023.
Options also play a critical role in hedge fund strategies, and they will make spot BTC ETFs more attractive to institutional capital. With Morgan Stanley giving its 15,000 advisors the greenlight to pitch spot BTC ETFs to clients, the addition of options is expected to drive significant investment flows into the crypto market.
