Just weeks after the Securities and Exchange Commission approved spot Bitcoin exchange-traded funds in January 2024, a new regulatory battle is already taking shape. Major U.S. exchanges are pushing to offer options on these newly minted ETFs, but the path to approval runs through a labyrinth of overlapping agencies and competing jurisdictions.
TL;DR
- Nasdaq, CBOE, and NYSE Arca all filed 19b-4 applications in January 2024 for SEC approval to trade options on spot Bitcoin ETFs
- Options approval requires coordination between the SEC, CFTC, and Options Clearing Corporation
- Bloomberg analyst James Seyffart estimates best-case approval by end of 2024, possibly extending into 2025
- SEC Chair Gary Gensler may delay approval citing Bitcoin price volatility and counterparty risk
- The SEC also charged the founder of American Bitcoin Academy with fraud on February 2
Ten spot Bitcoin ETFs have been trading since January 11, 2024, following the SEC’s landmark approval after a decade of rejections. The funds have already attracted billions in inflows, with BlackRock’s iShares Bitcoin Trust leading the pack. But for institutional traders and sophisticated investors, ETFs without options are like a sports car without a gear shift — functional, but limited.
A Three-Headed Regulatory Beast
The challenge with Bitcoin ETF options is that no single regulator has complete authority over their approval. While the SEC oversees securities like ETFs, Bitcoin itself is classified as a commodity, placing it under the jurisdiction of the Commodity Futures Trading Commission. The Options Clearing Corporation, which clears and settles all options trades on U.S. exchanges, adds a third layer of oversight.
For options on spot Bitcoin ETFs to begin trading, the OCC would need to apply for a CFTC exemption to clear and settle commodity-based products. This interagency coordination makes the process significantly more complex than the ETF approval itself, which was solely an SEC decision.
“The process is convoluted,” Bloomberg ETF analyst James Seyffart told Fortune, estimating a best-case scenario for overall approval toward the end of 2024. “My expectation is that they’re just going to move and get this done. I don’t expect it to be a huge battle.”
The Swiss Army Knife Appeal
Options on Bitcoin ETFs would dramatically expand the utility of these investment vehicles. Seyffart describes options as adding “Swiss Army knife appeal” to the ETFs, making them “better vehicle choices” for traders, long-term holders, and tactical investors alike.
Options allow investors to hedge positions, generate income through covered calls, and make directional bets with defined risk. For institutional investors who have been cautiously entering the Bitcoin market through ETFs, options provide the risk management tools they require for larger allocations.
Volatility and Counterparty Concerns
Not everyone shares Seyffart’s optimism. Terrence Yang, managing director of Swan Bitcoin, does not see SEC approval coming “anytime soon,” estimating end of 2024 at the earliest. “They want the market to settle and find its footing,” Yang said, referring to expectations of continued price volatility as Grayscale’s GBTC undergoes periodic selling.
Geoff Kendrick, head of crypto research at Standard Chartered, takes an even more bearish view. He predicts Gensler will “kick the can down the road” ahead of the November 2024 election. Even if the Democrats win, Gensler’s term expires by January 2025, and Kendrick believes the SEC chair has his eye on the Treasury Secretary position — meaning he will want to cement a tough-on-crypto legacy in his final months.
Counterparty risk also looms large. Most spot Bitcoin ETFs use Coinbase as their custodian, creating concentration risk in the options chain. “Trading Bitcoin ETF options would involve the issuer, the authorized participants, and the custodian,” Yang noted. “That’s risky, because you’re relying on one custodian.”
SEC Continues Enforcement Blitz
The push for options approval comes against a backdrop of continued SEC enforcement activity. On February 2, 2024, the SEC announced charges against the founder of the American Bitcoin Academy, an online crypto education course, accusing the individual of fraud targeting students. The action is part of a broader pattern of SEC enforcement under Chair Gensler, who has pursued actions against major exchanges including Binance and Coinbase.
The dual track of enforcement and product approval creates an unusual dynamic in which the SEC is simultaneously opening doors to institutional Bitcoin investment while maintaining pressure on other parts of the crypto ecosystem.
Why This Matters
The battle over Bitcoin ETF options is a preview of the regulatory challenges that will define crypto market structure for years to come. Unlike the binary question of whether spot ETFs should exist, options approval requires navigating the overlapping jurisdictions of the SEC, CFTC, and OCC — a process that could set precedents for how commodity-linked securities are regulated in the United States.
For the broader market, Bitcoin held steady at approximately $43,185 on February 2, with Ethereum at $2,308, reflecting investor confidence in the post-ETF landscape. But the options question remains the next frontier — and its resolution will determine just how deeply institutional capital can embed itself in the Bitcoin market.
Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Cryptocurrency markets are highly volatile, and readers should conduct their own research before making any investment decisions.