In January 2024, the three major U.S. stock exchanges—the New York Stock Exchange (NYSE), Arca, CBOE, and Nasdaq—filed applications with the Securities and Exchange Commission (SEC) seeking permission to list Bitcoin ETF options. Initially, the SEC’s stance on Bitcoin remained steadfast, and outside input was less than encouraging, with concerns raised about the potential risks of marketing options to retail investors.
However, the regulatory landscape has now changed. On August 8, 2024, Cboe filed an amended application with the Securities and Exchange Commission that addresses issues such as market manipulation and position limits in greater detail. The move was accompanied by a report from Bloomberg Intelligence analyst James Seyfert. note “The presence of ‘confirmed movement on Bitcoin ETF news’ suggests that the SEC is likely to provide constructive feedback to exchanges.
Bitcoin ETF Options: The Emergence of a New Market
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 cost of rolling over monthly futures contracts. Despite this, the options market has boomed, with open interest exceeding $3.25 billion as of August 9, 2024.
On the other hand, Bitcoin spot ETFs have a much larger asset base of over $58 billion as of the same date. And if Bitcoin futures ETF options are any indication, a new Bitcoin options market worth around $45 billion is expected to emerge, providing a major boost to the cryptocurrency financial system as a whole.
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Ethereum ETF Options on the Horizon
The regulatory momentum surrounding the Bitcoin ETF approval is expected to extend to Ethereum as well. According to a filing dated August 6, 2024, Nasdaq has requested permission from the Securities and Exchange Commission to list options on BlackRock’s iShares Ethereum Trust (ETHA). The move signals that the regulator’s growing acceptance of crypto-based options extends beyond Bitcoin to the broader digital asset landscape.
Institutional adoption and the role of options
Options trading is critical to institutional adoption, especially in the highly volatile cryptocurrency market. Financial advisors, who control a significant portion of the $9 trillion ETF market, rely on options to protect their clients’ portfolios from sharp price movements. In fact, a 2023 survey by Financial Planning Journal found that more than 10% of advisors were actively using options to manage client assets.
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Options also play a vital role in hedge fund strategies, such as the “covered strangle” approach promoted by investment research firm 10x Research. With Morgan Stanley, the world’s largest financial advisory firm, giving its 15,000 advisors the green light to offer clients spot bitcoin ETFs, the addition of options is expected to drive significant crypto investment flows into the crypto space.
Expected launch timeline
Despite these bureaucratic hurdles, industry experts remain cautiously optimistic about the timeline for a Bitcoin ETF launch. Bloomberg Intelligence expects Bitcoin ETF options to launch in the fourth quarter of 2024, likely before November, due to pressure from the upcoming U.S. presidential election.
As for Ethereum ETF news, regulatory momentum is expected to follow a similar path, with Nasdaq’s recent filing for permission to list options on the BlackRock Ethereum ETF serving as a promising indicator.
conclusion
The impending launch of Bitcoin and Ethereum ETF options represents a pivotal moment in the evolution of the cryptocurrency market. By providing institutional investors with the tools they need to manage risk and leverage their exposure, these tools will catalyze a new era of cryptocurrency development and market maturity.
As regulators continue to warm to the idea of crypto-based options trading, and industry stakeholders work together to overcome remaining bureaucratic hurdles, the future of the digital asset landscape looks increasingly promising. With the potential to unlock billions of dollars in new investment flows, the launch of these options could redefine the way the world interacts with the cryptocurrency world.