This is a segment from the Forward Guidance newsletter. To read full editions, subscribe.
A new crypto-related financial tool is finally here.
Spot bitcoin ETFs hit US exchanges in January, and more than 10 months later, investors are able to trade options on the biggest of those products (and others very soon).
As you probably know, an option is a contract representing the right to buy or sell a financial product at a certain price for a specific period of time.
Industry watchers have told Blockworks that options would lead to a more robust ecosystem around the spot ETFs, enhancing liquidity and price discovery.
CK Zheng, CIO of crypto hedge fund ZX Squared Capital, told me today that bitcoin ETF options are “extremely powerful” for institutional investors to better manage their bitcoin exposures under various market conditions.
Indeed, Anchorage Digital CEO Nathan McCauley said in a statement that the new product shows bitcoin is further “cementing its place alongside stocks, bonds and commodities as a mainstream institutional investment.”
The options can also be used by speculators, Zheng explained, to leverage their bets when they are extremely bullish or bearish on the asset.
Bitwise’s Jeff Park previously noted these options would mark “the first time the financial world will see regulated leverage on a perpetual commodity that is truly supply-constrained.”
Put another way by Joe Consorti in a video on X, listing options on bitcoin ETFs “opens the door to the largest and deepest liquidity pools on the planet.”
Let’s quickly run through some of the events leading up to these listings:
- Nasdaq, NYSE and Cboe submitted proposals to the SEC in January to list options on spot bitcoin ETPs.
- Grayscale Investments pointed out the SEC’s quick approval of options on bitcoin futures ETFs in a March blog post, calling on the regulator to do the same for the spot products. But that month, the SEC said it needed more time to consider the proposals.
- The SEC, on Sept. 20, gave “accelerated” approval of options on BlackRock’s iShares Bitcoin Trust (IBIT). About a month later, the SEC greenlit the bids by NYSE and CBOE to list options on other bitcoin ETFs.
- The CFTC last week essentially yielded to the SEC and the Options Clearing Corporation (OCC), saying that the listing of these bitcoin ETF options “does not implicate the CFTC’s jurisdiction.”
- The OCC said in a Monday memo that it was “preparing for the clearance, settlement and risk management” of bitcoin ETF options. A Nasdaq spokesperson confirmed to me later in the day that they intended to list IBIT options on Tuesday.
So here we are. Options on IBIT are available today; that fund has grown to have roughly $43 billion in assets under management — making it by far the largest bitcoin ETF and even bigger than the iShares Gold Trust (IAU).
Grayscale said bitcoin ETF options are set to begin trading on NYSE — the exchange on which its GBTC and BTC products are listed — tomorrow. Bitwise expects the same for options on its bitcoin ETF.
“Many new investors will, no doubt, leverage their experiences in investing in the meme stock options market to bitcoin options,” Zheng said. “The bitcoin ETF options market will compete greatly with Deribit to bring more investors to the US and help build the US as the bitcoin derivative trading center.”
Bitwise’s Park pointed out on X that BTC ETF options will have “cross-margining capabilities in multi-asset portfolios” than an exchange like Deribit “can never provide.”
He added: “Only spot ETF options can leverage your GLD, SPY, HYG ETFs, bonds, loans, and cross-margin to achieve unmatched capital efficiency — closest thing that looks like free leverage.”
Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.
Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.
Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.
The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.
