Bitcoin ETF Options Could Be Coming Soon

After months of inactivity, applications to list options on spot Bitcoin (BTC) exchange-traded funds (ETFs) are finally getting attention from regulators. It’s expected that BTC ETF options will start trading on U.S. exchanges later this year, with options on Ethereum ETFs likely to follow soon after.

Options are financial contracts that provide the right to buy or sell—referred to as “call” or “put”—an underlying asset at a specific price. These contracts are popular for both hedging risks and speculative trading. The introduction of options trading for Bitcoin ETFs could be a significant development, particularly for institutional investors, given the high volatility of crypto ETFs. If existing crypto options are any indication, spot BTC ETF options could become a substantial market.

In January, the three U.S. equities exchanges that list spot BTC ETFs—New York Stock Exchange (NYSE) Arca, Cboe, and Nasdaq—requested approval from the Securities and Exchange Commission (SEC) to list options on these funds. Initially, the SEC remained silent on the matter, and private watchdog groups expressed concerns. In May, Better Markets Inc. urged the SEC to proceed cautiously, highlighting the potential risks to retail investors, as seen during the 2021 meme stock frenzy surrounding GameStop.

The SEC delayed its decision multiple times throughout the year, but recent developments suggest progress. On August 8, Cboe submitted an amended application to the SEC, addressing issues like market manipulation and position limits in greater detail. Bloomberg Intelligence analyst James Seyffart noted on X (formerly Twitter) that there’s “definitely some movement on Bitcoin ETF options,” speculating that the SEC likely provided feedback. Bloomberg predicts that spot BTC options could go live in the fourth quarter of this year, potentially before the November elections, with spot ETH ETF options following closely behind.

Currently, U.S. investors can only trade options on Bitcoin ETFs that track BTC’s price using futures, which generally underperform compared to spot market equivalents. The most popular Bitcoin futures ETF—ProShares’ Bitcoin Strategy ETF (BITO)—underperformed the spot market by about 2.6% from January to May, according to K33 Research. Despite this, the market for these options is thriving, with open interest on BTC futures ETFs exceeding $3.25 billion as of August 9.

In comparison, the combined net asset value of all BTC futures ETFs is approximately $4.3 billion, meaning the options market is nearly as large as the ETFs themselves. Spot BTC ETFs, however, command a much larger asset base—over $58 billion as of August 9. If the options on BTC futures ETFs are any indication, a new $45 billion market could be on the horizon for spot BTC options.

This development is more than just a large number; options are essential market infrastructure and a critical step toward broader crypto adoption. Financial advisors, who manage nearly half of the investment flows in the $9 trillion ETF market, often use options to protect against market volatility. As of 2023, more than 10% of advisors actively used options to manage client portfolios, according to a survey by The Journal of Financial Planning.

Options are also integral to hedge fund strategies, such as the “covered strangle” strategy promoted by 10x Research. Morgan Stanley, the largest financial advisory firm with around $3.75 trillion under management, has already authorized its 15,000 advisors to recommend spot BTC ETFs to clients. The introduction of options will only make these ETFs more appealing to institutional investors.

The financial landscape is poised for significant changes as investment flows into these new instruments begin to grow.