Anticipated Launch of Bitcoin ETF Options Before 2025

Bitcoin ETF options are expected to commence trading in the United States prior to 2025.

Regulators Show Interest in Bitcoin ETF Options

After a period of stagnation, proposals to list options on spot Bitcoin (BTC) exchange-traded funds (ETFs) have finally garnered attention from regulatory bodies. It is anticipated that trading of BTC ETF options will begin on U.S. exchanges this year, followed closely by options on Ethereum (ETH) ETFs.

Options are contracts that provide the right to buy or sell an underlying asset at a predetermined price. They serve as valuable tools for hedging, allowing traders to protect themselves against price fluctuations.

While the introduction of options trading may seem less significant following the long-awaited launch of BTC ETFs in January, it plays a vital role in encouraging institutional participation, particularly in the inherently volatile crypto market.

The Progress of Regulatory Approval

In January, major U.S. stock exchanges listing spot BTC ETFs—namely NYSE Arca, Cboe, and Nasdaq—submitted requests to the Securities and Exchange Commission (SEC) to also allow options on these funds.

The SEC’s initial response was unresponsive, and various industry voices expressed concern, warning of potential risks to retail investors that could arise from marketing such options.

Subsequently, the SEC requested additional time for deliberation multiple times. A recent filing by Cboe included substantial revisions addressing market manipulation and other relevant concerns.

According to Bloomberg Intelligence analyst James Seyffart, there is noticeable movement regarding Bitcoin ETF options, suggesting that the SEC has provided constructive feedback on the applications.

Bloomberg forecasts that spot BTC options may launch in the fourth quarter, with expectations that the competition will heat up ahead of election pressures on the SEC. A recent filing from Nasdaq also indicates plans to list options on BlackRock’s iShares Ethereum Trust (ETHA).

Development of a New Market

In the meantime, U.S. investors can trade options on a less favorable class of Bitcoin ETFs—those that synthetically track BTC prices through futures contracts.

Futures ETFs typically lag behind their spot market counterparts due to the costs associated with rolling monthly futures contracts. Research indicates that the most popular Bitcoin futures ETF, the ProShares Bitcoin Strategy ETF (BITO), underperformed spot prices significantly.

Despite the limitations, the demand for corresponding options remains high, with open interest in BTC futures ETF options exceeding $3.25 billion. This is nearly on par with the combined net asset value of all BTC futures ETFs.

Spot BTC ETFs, however, boast a significantly larger asset base, totaling over $58 billion. If the patterns observed in futures options continue, a substantial new market for BTC options could emerge.

A Step Toward Mass Adoption

The development of Bitcoin ETF options not only signifies growth in this financial segment but also represents an important infrastructure element fostering broader crypto adoption.

Financial advisors, who influence a substantial portion of investment in the ETF market, utilize options for risk management in their portfolios. Notably, a survey revealed that over 10% of advisors actively employed options strategies in 2023.

Moreover, hedge funds commonly rely on options in their strategies, amplifying the appeal of Bitcoin ETFs within this context.

With firms such as Morgan Stanley enabling their advisors to promote spot BTC ETFs to clients, the introduction of options is likely to further enhance their attractiveness to institutional investors. An influx of investments can already be anticipated.