Anika Begay
A significant change is on the horizon: the potential “financialization” of Bitcoin through the introduction of spot Bitcoin exchange-traded fund (ETF) options. This move could herald a new era for Bitcoin, aligning it more closely with the operating dynamics of traditional financial markets.
Spot Bitcoin ETF Options Coming Soon?
Recent activity may indicate significant progress toward approval of spot Bitcoin ETF options. In particular, major market players such as NASDAQ, NYSE, and CBOE have withdrawn their initial filings. While CBOE has already filed a more detailed application shortly after, NASDAQ and NYSE are expected to do the same.
Bloomberg ETF analyst James Seyffart commented via X. “NASDAQ and NYSE have joined CBOE in withdrawing their applications to allow options to trade on Bitcoin ETFs. I expect them to revise their applications in the coming days or weeks, as we have seen from CBOE,” Seyffart said.
He further explained that the CBOE’s revised application has been significantly expanded from just 15 pages to a full 44 pages, suggesting substantial feedback from the SEC, potentially addressing concerns about position limits and the risk of market manipulation.
This new filing signals a reset in the review process, with Seyffart hinting that the new deadline could be pushed back to around April 25, though the exact timing could remain flexible depending on the intensity of the SEC’s engagement.
“There is no way to know for sure whether the SEC is working with the CBOE on this. One downside here is that I think this restarts the clock. So the deadline would move to late April (around April 25). But if the SEC is working, might the deadline not matter? Time will tell,” Seyffart wrote.
The Financialization of Bitcoin
According to Kelly Greer, Vice President of Trading at Galaxy Digital, the decision to list Bitcoin ETF options marks a pivotal moment for the market. Greer highlighted the transformative impact of derivatives on market functionality on X, noting that “Listing BTC ETF options is a bigger milestone than you might think. Derivatives are the foundation of functional markets, and BTC and digital assets still 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 like stocks and commodities can be 10 to 20 times larger than the underlying market cap, this ratio is starkly inverted in Bitcoin. He noted, “In BTC where the value of listed options is less than 2% of BTC’s market cap, the open interest in options is $20 billion, with another $2 billion from CME not included in this count.”
“Centrally traded perpetual open interest is $16 billion versus a spot market cap of $1.2 trillion,” he explained of access challenges holding back broader market participation, particularly impacting U.S. retail investors who make up a significant portion of equity options markets but are largely excluded from similar opportunities in Bitcoin due to regulatory constraints.
Greer conveyed the strategic importance of the U.S. financial market: “The U.S. 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. Listing options on the ETFs listed here open the door to the largest market makers and deepest liquidity pools possible to enable coverage and capital efficiency for BTC market participants.”
“Meltem Demirors and Kaledora Fontana Kiernan-Linn have recently made a compelling case for financialization, explaining how it has been central to the growth of the oil industry and will be central to the growth of new digital commodities, of which BTC is the mother,” Greer noted.
Demirors, former chief strategy officer at CoinShares, said via X: “Financialization is a wonderful thing. The advent of futures and oil derivatives markets enabled companies across the value chain to hedge and market makers to speculate on directional prices. Today, trading is a major driver of the profitability of oil and gas companies.”
At press time, BTC was trading at $58,451.
Featured image created with DALL.E, chart from TradingView.com
