The Securities and Exchange Commission (SEC) has delayed its decision on whether to approve options trading on bitcoin exchange-traded funds (ETFs). The SEC announced on Monday that it would extend the review period for the proposed rule change by another 45 days, until May 25, 2024.
Options trading on bitcoin ETFs would allow investors to buy or sell contracts that give them the right, but not the obligation, to buy or sell a specified amount of bitcoin at a predetermined price and time. This would provide more flexibility and leverage for traders who want to bet on the price movements of the cryptocurrency.
Bitcoin is a digital currency that operates on a decentralized network of computers. Bitcoin transactions are verified by network nodes and recorded in a public ledger called the blockchain. Bitcoin can be used as a medium of exchange, a store of value, or a unit of account.
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The SEC has been cautious about approving bitcoin-related products, citing concerns about market manipulation, fraud, custody, liquidity, and investor protection. The agency has rejected several applications for bitcoin ETFs in the past, but recently approved two bitcoin futures ETFs that track the price of bitcoin futures contracts traded on regulated exchanges.
The SEC said it needs more time to consider the comments it has received on the proposed rule change, which was filed by Cboe BZX Exchange in December 2023. The exchange wants to list and trade options on the VanEck Bitcoin Trust and the ProShares Bitcoin Strategy ETF, two of the bitcoin futures ETFs that launched in October 2023.
The SEC said it would seek additional public input on various aspects of the proposal, such as the potential impact of options trading on bitcoin ETFs on the underlying bitcoin market, the suitability of bitcoin as an underlying asset for options contracts, the risk of manipulation or fraud in the options market, and the adequacy of the exchange’s rules and surveillance procedures to prevent and detect such activities.
Option trading on bitcoin is a way of betting on the future price of bitcoin or earning income from holding bitcoin. There are two types of options: calls and puts. A call option gives the buyer the right to buy bitcoin at a fixed price (called the strike price) before a certain date (called the expiration date). A put option gives the buyer the right to sell bitcoin at the strike price before the expiration date.
Option trading on bitcoin can be done on various platforms, such as exchanges, brokers, or peer-to-peer networks. Some of the factors that affect the price of an option are the current price of bitcoin, the strike price, the time to expiration, the volatility of bitcoin, and the interest rate.
Option trading on bitcoin can be risky and complex, as it involves leverage, margin requirements, and liquidity issues. Therefore, it is important to understand the basics of option trading and the risks involved before entering this market.
The SEC’s delay is not surprising, given its history of postponing decisions on bitcoin-related products. However, some analysts and industry experts are optimistic that the SEC will eventually approve options trading on bitcoin ETFs, as it did with bitcoin futures ETFs. They argue that options trading would enhance price discovery, liquidity, and efficiency in the bitcoin market, as well as offer more choices and opportunities for investors.