The Securities and Exchange Commission (SEC) in the United States has hit the brakes on a crucial decision regarding the introduction of options trading for spot Bitcoin Exchange-Traded Funds (ETFs). This delay could have significant implications for investors and the digital assets market as a whole.
Bitcoin Options Trading: SEC’s Decision Delayed
The SEC has delayed its decision on whether to allow the New York Stock Exchange (NYSE) to offer options for trading on spot Bitcoin ETFs. The delay extends the period for deciding on a proposal to permit the listing and trading of options on ETFs like Bitwise Bitcoin ETF (BITB) and Grayscale Bitcoin Trust (GBTC).
The SEC mentioned in the filing that it finds it appropriate to designate a longer period to thoroughly consider the proposed rule change. NYSE initiated a rule change application on Feb. 9, documented in the Federal Register, sparking a 45-day comment period ending April 14.
SEC said in the filing:
“The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change.”
This delay could significantly impact options trading on various Bitcoin ETFs listed on the NYSE. Investors use options to enter contracts allowing them to buy or sell assets at specific prices over a period. With the surge in demand for bitcoin investment products, the approval of options for spot bitcoin ETFs could further enhance market participation and liquidity.
Grayscale CEO’s Plea to SEC
Michael Sonnenshein, CEO of Grayscale, one of the major players in the bitcoin investment space, urged the SEC to approve the rule change. In a public comment, Sonnenshein emphasized the importance of equal treatment for spot and futures bitcoin-based ETFs. He argued that the approval of options for spot Bitcoin ETFs would contribute to the development of a robust and healthy market.
He said:
“Our argument is straightforward: if investing in options for shares of products holding derivatives of an asset is acceptable for investors, investing in options for shares of products holding the asset itself should be as well.”
Last month, Grayscale Investments highlighted the SEC’s swift endorsement of options on bitcoin futures ETFs. Since spot commodity products such as GBTC are registered under the Securities Act of 1933, they require individual SEC scrutiny.
Grayscale added:
“The natural next step is the approval of options on spot Bitcoin ETPs […] We believe the commission should update this outdated approach to approve options on spot commodity-based ETPs that are structured identically to already-approved ETPs.”
Industry Expectations and Deadlines
The SEC’s next deadline to decide on the rule change is set for May 29. This delay follows similar postponements for Nasdaq’s request for options trading on BlackRock’s iShares Bitcoin Trust (IBIT). The Cboe exchange has also filed a proposal for options trading on spot Bitcoin funds, with the SEC having an April 24 deadline to rule on the exchange’s filing.
Industry experts have offered insights into the potential reasons behind the SEC’s cautious approach. CK Zheng, co-founder of hedge fund ZX Squared Capital, noted that innovative financial products involving both the SEC and the Commodity Futures Trading Commission (CFTC) typically face longer approval timelines. Zheng emphasized the importance of a “healthy” Bitcoin ETF options market for accelerating Bitcoin adoption, especially in traditional finance.
He stated:
“It usually takes a longer period of time to approve an innovative financial product when both CFTC and SEC are involved.”
Zheng remarked that due to the newness and high volatility of the bitcoin market, it’s understandable that the SEC is proceeding cautiously with the approval process. However, Zheng hopes that the approval process can be finalized by the end of the year, as there are no fundamental issues with the underlying commodity or its associated option product.
On the other hand, Morningstar’s Bryan Armour finds the SEC’s postponement of options approval for these funds perplexing, stating:
“I’m not sure why the SEC is taking so long to review these rule changes, they already approved options for bitcoin futures ETFs, even leveraged ones like BITX. I can’t see why they would deny options for spot bitcoin ETFs.”
Nate Geraci, The ETF Store president, finds the delays disappointing, especially with existing options for bitcoin futures ETFs. He mentioned, “It’s difficult to reconcile why options wouldn’t exist on the spot products, options would contribute to a more robust ecosystem around the spot ETFs, which enhances liquidity and price discovery — a clear benefit to investors.”
Bloomberg Intelligence’s ETF analyst, James Seyffart, stated that the postponement was “mostly expected at this point.” Despite this, Seyffart remains optimistic about the approval of spot bitcoin ETF options, stating:
“I personally think they will ultimately be approved because there is a lot of firepower behind them, namely, the issuers like BlackRock, Fidelity (Investments), Invesco and others.”
James J. Angel, a finance associate professor at Georgetown University, McDonough School of Business, also submitted a comment letter. He expressed:
“There is no reason for the SEC to delay approval of options on spot bitcoin ETFs, don’t you have better things to do than waste time through extended navel-gazing on these rule filings?”
Sonnenshein Calls for Market Development
Sonnenshein reiterated the importance of advocating for the development of a robust options market for spot Bitcoin ETFs. He highlighted the significance of options in enabling investors to manage their positions effectively and contribute to price discovery. His plea reflects the broader industry sentiment calling for regulatory clarity and support for Bitcoin market development.
He added:
“But we do think this could be very, very meaningful for the further adoption and maturation of spot bitcoin ETFs and users, it could help lead to price discovery, it could help investors manage their positions better and it could also actually lead to additional product creation.”
Sonnenshein highlighted the need for careful consideration by regulatory bodies such as the SEC, CFTC, and the Options Clearing Corp, with hopes that this process would occur by the third quarter of the year.
Sonnenshein also pointed out the absence of listed options for products like GBTC, which has been in the public market since 2015 but lacks this feature due to its OTC nature. He argued for the equal treatment of listed options on both futures and spot Bitcoin ETFs.
Global Implications and Future Outlook
The delay in approving options for spot Bitcoin ETFs extends beyond the United States. Recently, Chinese mainland-based equity funds applied to introduce spot Bitcoin ETFs through their Hong Kong subsidiaries. The global interest in Bitcoin ETFs underscores the need for regulatory frameworks that facilitate innovation while ensuring investor protection.
Conclusion
The SEC’s decision to delay the approval of options trading for spot Bitcoin ETFs underscores the regulatory complexities surrounding bitcoin markets. While industry players advocate for market development and regulatory clarity, investors await the SEC’s decision, which could have far-reaching implications for the entire ecosystem.
As the deadline approaches, all eyes remain on the SEC’s next move and its impact on the evolving landscape of Bitcoin investment.
