A significant change is on the horizon: the possible “financialization” of bitcoin through the introduction of options on spot bitcoin exchange-traded funds (ETFs). This change could herald a new era for bitcoin, bringing it closer to the operating dynamics of traditional financial markets.
Are bitcoin Spot ETF Options Coming Soon?
Recent activities may indicate significant progress towards the approval of bitcoin spot ETF options. Notably, key market players such as NASDAQ, NYSE, and CBOE have retracted their initial filings. While CBOE already submitted a more detailed application shortly after, NASDAQ and NYSE are expected to follow suit.
Bloomberg ETF analyst James Seyffart x.com/JSeyff/status/1824173963284738087″ target=”_blank” rel=”noopener nofollow”>he stressed “NASDAQ and NYSE have joined CBOE in withdrawing their applications to allow options trading on bitcoin ETFs. I expect they will resubmit in the coming days or weeks, as we saw at CBOE,” Seyffart said.
He further explained that the CBOE's revised application was significantly expanded from just 15 pages to a robust 44 pages, suggesting substantial feedback from the SEC, potentially addressing concerns related to position limits and the risk of market manipulation.
This new filing signals a reset in the review process, and Seyffart hinted that the new deadline could be extended to around April 25, though the exact timeline may remain flexible depending on the depth of the SEC's engagement.
“There is no way to know for sure whether the SEC is working with the CBOE on this issue. One downside is that I think this resets the clock. So the deadline would be moved to sometime in late April (roughly April 25). But if the SEC is working, the deadline might not actually matter? Time will tell,” Seyffart wrote.
The financialization of bitcoin
According to Kelly Greer, vice president of operations at Galaxy Digital, the decision to list options on bitcoin ETFs marks a pivotal moment for the market. Greer x.com/kellyjgreer/status/1824166961216909552″ target=”_blank” rel=”noopener nofollow”>emphasized The transformative impact of derivatives on market functionality in x, noting that “the inclusion of options in btc ETFs is a bigger milestone than one might think. Derivatives are the foundation of functional markets, and btc and digital assets have a long way to go to catch up with traditional markets.”
Greer highlighted the current disparity in the derivatives market, noting that while derivatives in traditional markets such as stocks and commodities can be 10 to 20 times the size of the underlying market cap, this ratio is sharply reversed in bitcoin. He noted: “In btc, where the value of listed options is less than 2% of btc’s market cap, options open interest amounts to $20 billion, with another $2 billion from the CME not included in this count.”
“Perpetual open interest trading on centralized exchanges is $16 billion versus a spot market cap of $1.2 trillion,” he explained of access challenges holding back broader market participation, particularly affecting U.S. retail investors who form a significant portion of equity options markets but are largely excluded from similar opportunities in bitcoin due to regulatory restrictions.
Greer conveyed the strategic importance of the US financial market: “The US equity markets are the largest and most liquid markets in the world, comprising 44% of the $109 trillion global equity market as of Q4 2023. The listing options on the ETFs listed here open the floodgates to the largest market makers and deepest liquidity pools possible to enable hedging and capital efficiency for btc market participants.”
“Recently, Meltem Demirors and Kaledora Fontana Kiernan-Linn made a compelling case for financialization, explaining how this was critical to the growth of the oil industry and will be critical to new digital commodities, with btc being the mother of them all,” Greer said.
Demirors, former chief strategy officer at CoinShares, said via x: “Financialization is a beautiful thing. The emergence of oil futures and derivatives markets allowed companies across the value chain to hedge and market makers to speculate on directional prices. Today, trading is a huge driver of profitability for oil and gas companies.”
At the time of writing, btc was trading at $58,451.
Featured image created with DALL.E, chart from TradingView.com
