Options on new U.S. spot bitcoin exchange-traded funds (ETFs) could take months to gain regulatory approval, potentially dampening the appeal of the underlying products, multiple industry sources said.
The Securities and Exchange Commission (SEC) last month approved spot bitcoin ETFs, in a watershed for the crypto industry. Ten products have been trading since Jan. 11.
Options are listed derivatives that give the holder the right to buy or sell an asset, such as a stock or exchange-traded product, at a predetermined price by a set date. They offer traders a cheap way to amplify their purchasing power, while institutional investors often use them to hedge risk.
Options on the bitcoin ETFs are delayed because there is no established regulatory process for approving them, the people said.
The SEC oversees technical rule changes that exchanges must make to list options, and typically approves them days after an ETF starts trading. But because regulators view bitcoin as a commodity, spot bitcoin ETF options may also require approval from the Commodity Futures Trading Commission (CFTC), which oversees commodity derivatives, the people said.
Products related to the spot bitcoin ETFs could raise questions about jurisdiction and oversight, which the CFTC is still sorting through, said a person familiar with the matter who declined to be identified discussing regulatory matters.
"This dual regulatory engagement adds a layer of complexity and potential for what some might call regulatory headaches," said Martin Leinweber, digital asset product strategist at MarketVector Indexes, which provides the benchmark for VanEck's spot bitcoin ETF. He expects it could take between two and ten months for the approvals.
Without the options, big investors, which analysts have said could help drive as much as $100 billion into the ETFs, face risk management issues. That may lead some "to stay away altogether," said Yesha Yadav, law professor at Vanderbilt University.
The delay is also an obstacle to the crypto industry's goal to bring more innovative crypto products to market.
"The markets really want to go there, but the regulators are the gatekeepers," said John Roglieri, head of capital markets at FalconX, a market-maker for the ETFs.
While it is not unprecedented for options to require dual approval, it is rare. In the case of the first ETF tied to a physical commodity, the SPDR Gold Shares ETF , it took more than three years for the CFTC to approve the options. Regulators never signed off on a 2010 application to launch options on platinum and palladium ETFs.
The SEC did not respond to a request for comment. The CFTC declined to comment.
Nasdaq, CBOE and NYSE Arca, which list the ETFs, in January sought SEC approval to launch the options, according to notices on their websites. CBOE said that it expects to list options "later in 2024."
The Options Clearing Corporation (OCC), which clears options for exchanges, has to seek CFTC approval to clear and settle commodity-based products. The OCC has said it is working with its regulators on required approvals, but declined to comment on a possible timeframe.
Some exchange executives are due to meet with CFTC officials to discuss the issue soon, according to a second person familiar with the matter.
Given it took 10 years for the SEC to approve bitcoin ETFs, a delay in the options would not be surprising, said Adam Sze, head of digital assets product at Global X, which withdrew its own application for a spot bitcoin ETF on Tuesday.
"A few more months for listed options probably isn't that long in the grand scheme of things."
