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The U.S. Securities and Exchange Commission (SEC) has deferred its ruling on whether to approve options trading on spot Ethereum exchange-traded funds, which could bring more capital to the Ethereum market.
The decision timeline for Ethereum-based products managed by BlackRock, Bitwise, and Grayscale has changed.
According to a filing dated September 24, the SEC has extended the deadline for its decision on a proposed rule change by Nasdaq ISE, which seeks to list and trade options on BlackRock’s spot Ethereum ETF, the iShares Ethereum Trust.
More ETF Coming Soon
A second filing reveals that the SEC has also postponed its ruling on a proposed rule change submitted by NYSE American LLC, which requests to permit the listing and trading of options on three spot Ethereum products, including the Bitwise Ethereum ETF, the Grayscale Ethereum Trust, and the Grayscale Ethereum Mini Trust.
Both Nasdaq ISE’s and NYSE’s filings were published in early August, but the SEC has now extended the decision-making period for each to November. The agency said it needed more time to carefully review these proposals.
Investors believe the potential approval of the rule changes to list and trade Ethereum ETF options could pave the way for increased access to Ethereum-based derivatives. With the recent approval of options trading on spot Bitcoin ETFs, experts see a similar opportunity for their Ethereum counterparts.
Last week, the SEC greenlit options trading on BlackRock’s iShares Bitcoin Trust (IBIT), a move said to be critical to integrating Bitcoin into traditional financial markets. With the regulatory nod, investors are expected to be able to hedge their positions and manage risk more effectively through options trading.
A Deeper Market
Options trading on spot crypto ETFs, such as BlackRock’s IBIT, allows investors to buy or sell options contracts that are linked to the performance of the underlying ETF, here Bitcoin and potentially Ethereum.
For larger institutions such as hedge funds, pension funds, and investment firms, the approved crypto ETF options allow them to gain exposure to Bitcoin using familiar investment strategies.
With crypto ETF options, investors can now interact with Bitcoin in various ways and employ diverse trading strategies. They can buy a Bitcoin ETF and then purchase put options, or short BTC and buy calls.
The diversification could lead to more sustainable demand for Bitcoin-related financial products, indirectly boosting demand for Bitcoin itself. Long-term Bitcoin ETF investors can also generate income by selling call options.
For the American-style options to officially be listed and traded, the proposals must need approvals from the Options Clearing Corporation (OCC) and the Commodity Futures Trading Commission (CFTC), in addition to the SEC.
BlackRock expects the recent approval of Bitcoin ETF options will attract more liquidity to the IBIT fund, which is already the world’s top-performing Bitcoin ETF and BlackRock’s one of the most successful ETFs.
As of September 24, IBIT logged almost $21 billion in net inflows, currently being the largest Bitcoin ETF. BlackRock’s iShares Ethereum Trust was also the fastest among newly launched US Ether products to exceed $1 billion in net inflows, according to Farside Investors.
According to Matthew Sigel, VanEck’s Head of Digital Asset Research, the Bitcoin derivatives market is dramatically smaller compared to the equity and commodity derivatives. The huge gap indeed poses a huge potential.
Sigel believes that if the approval of Bitcoin options comes through, the Bitcoin derivatives market will have a chance to catch up to the equity and commodity derivatives market. The analyst indicated that the Bitcoin derivatives market is still in its early stages and has a lot of room to grow.
The Ethereum derivatives market is also underdeveloped, but this means that there is a big growth opportunity if options trading for Ethereum ETFs gets the regulatory nod.
