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Bitcoin ETF: Grayscale Wants SEC to Approve Options 

Last Updated March 1, 2024 4:00 PM
Shraddha Sharma
Last Updated March 1, 2024 4:00 PM
By Shraddha Sharma
Verified by Peter Henn

Key Takeaways

  • Grayscale Investments is seeking SEC approval for options on its Bitcoin ETF.
  • Approval is expected to attract more regulated participants to Bitcoin trading.
  • However, regulatory complexities arise from Bitcoin’s classification as a commodity.
  • Court rulings have set a precedent for Grayscale’s pursuit of a Bitcoin derivative product.

Crypto asset manager Grayscale Investments wants the United States Securities and Exchange Commission (SEC) to approve options for its Bitcoin exchange-traded fund (ETF). The decision could potentially open doors for a broader investor base and integrate Bitcoin further into the regulated financial market.

However, Bitcoin’s commodity  classification and Grayscale’s legal battle with the SEC have set precedents for the outcome.

Grayscale’s Case for Options

Grayscale CEO Michael Sonnenshein has argued that disallowing options on its Grayscale Bitcoin Trust would be discriminatory to shareholders, especially since the SEC has approved options for ETFs linked to Bitcoin futures. He emphasized that options trading would benefit investors by providing additional regulated avenues for participation.

He said, “It is vital to the interests of GBTC and all spot Bitcoin [exchange-traded product] investors to access exchange-listed options on GBTC and other spot Bitcoin ETPs.”

Options are contracts giving the buyer the right, but not the obligation, to buy or sell an asset at a specific price within a certain time frame. For Grayscale, offering BTC options would allow investors to make decisions around Bitcoin’s price volatility. It means that Grayscale can potentially benefit from increasing trading volume and reducing price swings.

SEC’s Consideration of Options Trading

In February, the SEC started soliciting public commentary on a proposed rule change to permit options listing and trading for Bitcoin ETFs. The notice  explained the approval would bring options on Bitcoin ETF at par with options on other ETFs, including those based on commodities. This would prove positive for Bitcoin’s accessibility.

The SEC’s approval might not be the final step, however. This is because Bitcoin’s status as a commodity means the Commodity Futures Trading Commission (CFTC) might also need to sign the approval off.

Grayscale BTC Holdings | Source: Coinglass
Grayscale BTC Holdings | Source: CoinGlass

Grayscale’s judiciary victory from 2023 might also set a precedent. Previously, an appellate court overturned a lower court’s decision, siding with Grayscale, who said the SEC’s rejection of their Bitcoin ETF proposal was inconsistent. It potentially smoothens the path for future approvals.

Options Approval Would Impact Fund Flows

The trading volumes for Bitcoin ETFs have reached peak levels. However, Grayscale-backed ETF experienced huge outflows despite a reduction in the rate of negative fund flows in the past. Commentators have partly attributed the weakness to Genesis Bankruptcy.

That said, GBTC is trading at a discount to its net asset value (NAV), based on yCharts data. A discount means the market price is lower than the value of the Bitcoin it holds at the time of publication.

GBTC Discount to NAV | Source: yCharts
GBTC Discount to NAV | Source: yCharts

CoinGlass’ Options/(Perps+Futures) OI Ratio, which compares the value of open options contracts to futures and perpetual contracts, is increasing. A rise suggests a growing impact of options trading on the underlying Bitcoin prices, particularly as the ratio approaches or exceeds the key threshold of 1. Since the last quarter of 2022, the impact has been notable in the chart.

Options/(Perps+Futures) OI Ratio | Source: CoinGlass
Options/(Perps+Futures) OI Ratio | Source: CoinGlass

What to Expect?

Grayscale’s push for SEC approval of Bitcoin ETF options comes at a time of peaking Bitcoin ETF interest. A favorable court ruling in a past case and a decrease in negative fund flows could add confidence that the SEC’s decision might be in favor.

The growing Options/(Perps+Futures) OI Ratio indicates that options traders could also impact the spot Bitcoin ETF market. But right now, a clear decision might not come from the SEC due to Bitcoin’s commodity status and a CFTC commentary might be expected.

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