SEC gives nod to options trading for spot bitcoin ETFs

SEC gives nod to options trading for spot bitcoin ETFs
The regulator approved amended requests for rule changes by CBOE and NYSE American to allow options trade for several spot bitcoin ETFs.
OCT 21, 2024

Investors are getting a greater variety of ways to bet on bitcoin, with the SEC on Friday granting fast-track approval to the CBOE and NYSE to trade options for certain ETFs.

That comes both as an increasing number of retail investors use options and amid rising hype for betting on bitcoin – including from numerous spot-price ETFs that the Securities and Exchange Commission approved in January.

CBOE will trade certain options for two products – the Fidelity Wise Origin Bitcoin ETF and the ARK 21Shares Bitcoin ETF. The exchange initially filed in August to trade options for a much lengthier roster of spot bitcoin ETFs but greatly scaled back its request.

Similarly, the SEC approved a pared-down rule-change request by NYSE American for options on the Grayscale Bitcoin Trust, Grayscale Bitcoin Mini Trust, and the Bitwise Bitcoin ETFs.

Those decisions followed the SEC’s approval last month for Nasdaq to trade options on the biggest such product on the market, the $26.5 billion iShares Bitcoin Trust ETF.

“Traditionally, options are used more as risk-management tools for professional traders and investors, but it’s definitely trickled into retail markets,” said Bryan Armour, director of passive strategies research at Morningstar, pointing out the rise in options trading that came out of Covid. “I expect everyone that is interested in these to get involved,” Armour said, explaining that the developments are a nod to Bitcoin ETFs that could accelerate product development, including possible buffered ETFs.

The SEC’s decision also comes as more options-based ETFs have been appearing on the market, he said.

The effects of options on bitcoin ETFs will likely be widespread, said Roxanna Islam, head of sector and industry research, TMX VettaFi.

“Spot bitcoin ETF options will likely appeal to institutional investors and traders – which are both already showing increased adoption of crypto – and be used to hedge exposure to bitcoin,” Islam said in an email. “The effects will be much broader, however, and allow for better liquidity, transparency, and efficiency, which could contribute to greater demand and inflows among a wider group of investors.”

A recent report found that about 6 to 7 million US households trade options or on margin. Over a year, 16 percent of people placed options trades, with the proportion being higher among younger investors, according to consumer research firm Hearts & Wallets.

Though highly volatile, bitcoin prices have been inching toward a high near $70,000 this year.

A monumental step for the crypto asset was the SEC’s approval of spot-price ETFs, which helped add a sense of legitimacy to it.

So far this year, nearly $20.5 billion has flowed into spot bitcoin ETFs, according to data from Morningstar Direct. That was led by nearly $22.9 billion going into the iShares ETF, followed by $10.3 billion go to the Fidelity Wise Origin Bitcoin ETF, which at net assets of about $12.7 billion makes it the third-largest in its category. The second-biggest, the $15.2 billion Grayscale Bitcoin Trust ETF, has hemorrhaged $20.1 billion since it launched as a conversion of that firm’s non-ETF bitcoin trust.

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