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The United States Securities and Exchange Commission has delayed its decision on whether to approve the trading of options on exchange-traded funds (ETFs) that invest directly in Bitcoin.
The opening could pave the way for more institutional funding into Bitcoin but the timeline on the call has now been extended, following the filing from Cboe Exchange Inc. A similar filing from Nasdaq has also been given the same holding treatment by the SEC, which would allow listing and trade options on BlackRock’s iShares Bitcoin Trust.
After the exchanges all moved to list Bitcoin ETF options on 25 January, the SEC faced its initial deadline for a decision on 10 March, but US securities laws give the independent agency of the United States federal government 45 days to decide or defer a decision on the matter.
The deferral means another 45 days (the maximum of 90 days under the law) to reach to a final decision, which is now set for 24 April.
How do the options on ETFs work?
Options are derivative products that give traders leverage to make directional bets on the market.
If a trader believes Bitcoin’s price will rise, they could pay a premium, buy a ‘call option’, and agree to buy 1 BTC at the current price within a month while placing less money than would be required to buy 1 BTC.
If Bitcoin rises over the month, the trader could use their option to buy Bitcoin at a lower price to sell on for a profit. If it falls, the trader could let the contract expire with the loss of the premium paid.
Since spot Bitcoin funds were approved by the SEC in January, there has been significant backing received from the market with investors clamouring to get on board. As included in the Bloomberg report, the 10 funds have amassed a net $8.9 billion so far this year, with the overall approved fund holding standing at around $26 billion (in assets), excluding Grayscale’s spot fund which was already contained in an existing fund structure.
Options are good for investors, whether retail or institutional, and contribute to a robust and healthy market. Options support price discovery, and can help investors better navigate market conditions or achieve desired outcomes, such as generating income.
— Sonnenshein (@Sonnenshein) February 5, 2024
Last month, Grayscale CEO Michael Sonnenshein urged regulators to approve exchange-listed options for the ETFs, adding his voice to the argument that the options represent a positive for investors as they support “price discovery and can help investors better navigate market conditions or achieve desired outcomes, such as generating income.”
Image credit: Pierre Borthiry – Peiobty on Unsplash
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