Will SEC Approve Bitcoin Options ETF in 2024

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Following the U.S. Securities and Exchange Commission’s landmark approval of spot Bitcoin ETFs, a new challenge surfaces as the regulatory process delays the approval of options on Bitcoin ETFs, potentially impacting their appeal.

The delay in approving options on spot Bitcoin ETFs comes from the lack of a strong and established regulatory process. While the SEC traditionally approves technical rule changes for options shortly after an ETF starts trading, the case is different for Bitcoin. 

The decentralized nature of Bitcoin has led the Commodity Futures Trading Commission (CFTC), which oversees commodity derivatives, to take extra time and carefully scrutinise the matter before approving. 

Martin Leinweber, Digital Asset Product Strategist at MarketVector Indexes, providing the benchmark for spot Bitcoin ETFs in VanExk, says, “This dual regulatory engagement adds a layer of complexity and potential for what some might call regulatory headaches.“

Leinweber expects a time range of two to ten months for the approval of options. This delay is not only a hindrance to the crypto industry’s goal of introducing innovative products but also poses risk management challenges for significant investors. 

Without options, institutional investors may face difficulties in managing risks, potentially leading some investors “to stay away altogether” from the ETFs, as expected by Yesha Yadav, a law professor at Vanderbilt University. This obstacle could impede the industry’s aspiration to attract substantial investments, estimated to reach as high as $100 billion.

While it’s not unprecedented for options to require dual approval, it remains a rare occurrence. The SPDR Gold Shares ETF, tied to a physical commodity, experienced a similar delay of over three years for CFTC approval of options. Exchanges such as Nasdaq, CBOE, and NYSE Arca, which list the ETFs, have sought SEC approval for options, with CBOE expecting to list them later in 2024.

In a parallel development, Arthur Hayes, BitMEX’s founder, explores the potential impact of traditional finance challenges on Bitcoin’s value. Analyzing the financial setback of New York Community Bancorp (NYCB) and broader banking sector concerns, Hayes predicts a move by Federal Reserve leaders to print more money in response. 

He points out the potential response from Federal Reserve leaders, stating, “If my forecast is correct, the market will bankrupt a few banks within that period, forcing the Fed into cutting rates and announcing the resumption of the BTFP.”

He anticipates a renewed bank bailout, suggesting that such a scenario could inject liquidity into cryptocurrencies, particularly Bitcoin.

Hayes acknowledges that there may be a temporary decrease in the value of Bitcoin due to banking concerns, but he believes that asset dumping by banks like NYCB could cause a new bailout.

He notes that Bitcoin’s performance during the banking crisis in March 2023 is similar, with a brief drop followed by a significant bull run.

During the March crisis, Bitcoin’s value rose by more than 40% due to its perceived role as a safe-haven asset or digital gold in times of financial instability.