Options on new U.S. spot Bitcoin ETFs could take months to gain regulatory approval, potentially reducing the attractiveness of the underlying product, according to multiple industry sources cited by Reuters.
The US Securities and Exchange Commission (SEC) approved spot bitcoin ETFs last month, marking an important milestone for the cryptocurrency industry. Ten products have been traded since January 11.
Options are defined as listed derivatives that give their owners the right to buy or sell an asset, such as a stock or exchange-traded product, at a predetermined price by a certain date.
However, options on Bitcoin ETFs are being delayed because there is no established regulatory process to approve them. The SEC oversees technical rule changes that exchanges must make to list options and typically approves them days after an ETF begins trading. But since regulators view Bitcoin as a commodity, spot BTC ETF options may also require approval from the Commodity Futures Trading Commission (CFTC), which oversees commodity derivatives.
“This dual regulatory interaction adds a layer of complexity and potential for what some might call a regulatory headache,” said Martin Leinweber, digital asset product strategist at MarketVector Indexes, which provides the benchmark for VanEck’s spot Bitcoin ETF. Leinweber estimates approvals could take anywhere from two to ten months.
Without options, which analysts say could help pour as much as $100 billion into ETFs, large investors face risk management problems. That could lead some to “stay away altogether,” said Yesha Yadav, a law professor at Vanderbilt University.
The delay also poses an obstacle to the crypto industry's goal of bringing more innovative crypto products to market. “The markets really want this, but the regulators are not passing it,” said John Roglieri, head of capital markets at FalconX, a market maker for ETFs.
While it is not unprecedented for options to require double confirmation, it is rare. It took the CFTC more than three years to approve options on the SPDR Gold Shares ETF, the first ETF tied to a physical commodity. Regulators never signed off on a 2010 application to launch options on platinum and palladium ETFs.
Nasdaq, CBOE and NYSE Arca, which list the ETFs, sought SEC approval to launch options in January, according to notices on their websites. CBOE said it expects to list the options “in late 2024.”
The Options Clearing Corporation (OCC), which regulates options for exchanges, must request CFTC approval to issue and clear commodity-based products. The OCC said it was working with its regulators on the necessary approvals, but declined to comment on a possible timeframe.
Adam Sze, digital assets product manager at Global
“A few more months for the options listed is probably not that long in the grand scheme of things.”
*This is not investment advice.