Crypto Bitcoin Approval – ETF -US. SEC – Photo Illustration
NurPhoto via Getty Images
2024 has been the year of improving trust and investor confidence in crypto with the SEC approval and launch of Exchange-Traded Funds (ETFs) for spot bitcoin (BTC) followed by ether (ETH).
The AUM for spot BTC ETFs has the crossed the $50 billion mark in less than a year as both retail and institutional investors adopted this instrument for exposure to crypto. According to data from CoinGlass, spot BTC ETFs have delivered mostly positive net inflows since their launch.
Total Bitcoin Spot ETF Net Inflow (USD)
Coinglass
Because bitcoin is a volatile asset, and regulatory concerns remain, several TradFi players, especially smaller ones, do not deal directly in spot ETFs. This is one of the remaining barriers to crypto and spot ETFs achieving critical mass.
Though not as accelerated as the SEC claimed in its filing on September 20, the approval of Options on spot BTC ETFs is a key positive development towards fostering greater adoption.
In the SEC’s view, the move will, “help investors to hedge their positions and manage crypto-related risk.”
MORE FOR YOU
A Secured BTC Tool For Leverage
When BTC ETF Options go live following the CFTC and OCC approvals, they will represent the first regulated leverage tool for one of the world’s most decentralized and supply-constrained commodities.
Though bitcoin’s non-custodial, deflationary store of value narrative has gained considerable strength over the years, it has so far been unable to capitalize on the liquidity boost that synthetic leverage enables.
Institutions have mostly remained on the sidelines given excessive counterparty risks and lack of redress mechanisms. Retail investors have to rely heavily on inefficient, perpetual or “perps” based instruments for leverage.
As Rich Rines, CoreDAO contributor, highlights, “Following the approval of spot bitcoin ETFs, the traditional financial world has been searching for more flexible ways to engage with bitcoin. Up to this point, traditional institutions have only been able to buy and hold via ETFs. They earn no yield on their Bitcoin and face rigid limitations in terms of financial flexibility. Options are one of the first ways traditional institutions can increase exposure, manage risks, and generate income with Bitcoin. Until institutions can earn yield via Bitcoin ETFs, options will be an invaluable tool in the toolbelt for sophisticated traditional institutions.”
The prospect of securing longer-term incentives for stakeholders to move beyond speculation with mote sophisticated hedging tools is one of the biggest anticipated benefits of the Options approval.
Unique Divine, ceo of Nibiru, says, “The launch of spot bitcoin ETFs in January ended a decade-long wait. Billions in institutional inflows followed. This was only the beginning. With each step forward, momentum built, driving the SEC’s approval of Ethereum ETFs in July. Now, we’re on the cusp of a new era. Digital assets, once fringe, are evolving into regulated investment vehicles. Accessible. Mainstream. For everyone.”
Unlocking Secondary Financial Products
Spot BTC ETF Options might be the first, but they surely won’t be the last. ETH ETFs, and possibly even SOL or other altcoin ETFs in the future, will inevitably get Options-based instruments in some capacity sooner or later.
Against this backdrop, the approval of BTC ETF Options will further contribute to the virtuous feedback loop where more trust brings more liquidity into the space, which further improves trust and demand for a wide range of secondary products.
Abhitej Singh, founder of Filament Finance, notes, “Given their time aspect, among other factors, Options provide a solid foundation for all kinds of financial derivatives, which can be a massive value unlock in the context of DeFi. With products like defined-outcome ETFs, premium income funds, tail risk ETFs, etc., bitcoin holders will now get loads of opportunities to use their bitcoin to generate value without selling them.”
Generating passive or low-risk income of BTC is an important factor in boosting the asset’s utilization ratio, which is currently as low as 0.2 percent according to Grayscale.
The launch of Options will help catalyze the move that spot ETFs have already started. It represents a trillion-dollar opportunity, but more importantly, strengthening bitcoin’s value proposition will inevitably improve crypto’s value proposition as a whole. If not by way of competition, then simply by trickle effect and market rotation.
Alongside other bullish macro-economic and regulatory developments like the Fed’s much-awaited rate cut signaling the easing cycle and the Bank of New York’s market entry as a bitcoin custodian for ETF providers, the approval of Options on spot ETFs marks another milestone for crypto’s journey to mass retail.
While this is likely to produce net positive results, it’s also helps to ensure that crypto’s foundational values and principles remain intact in the face of increasing institutional participation.
Shibtoshi, founder of SilentSwap, says, “Institutional participation and political attention are welcome from a business and growth standpoint, but now is also the time to hold crypto’s core vision in high regard. The goal is to build decentralized, community-oriented tools with institution-level security and stability. Otherwise, it won’t be long before crypto’s fate becomes the same as Web2’s.”
Adds Paxful ceo, Roshan Dharia, “Publicly traded bitcoin options are a vital tool for the maturing cryptocurrency market, offering both hedging opportunities and greater price discovery. At Paxful, we see these instruments as part of a larger ecosystem that enhances liquidity and provides institutional and retail investors alike more sophisticated strategies for managing risk. We believe these advancements ultimately strengthen the market, making crypto a more attractive, stable, and robust asset class globally.”
For the BTC or crypto-backed financial ecosystem to realize its potential, it’s important to not lose sight of the broader mission amidst the frenzy of institutional validation. The endgame is a more holistic environment, where investors get the benefits of decentralization and cutting-edge technologies with the convenience and seamlessness of many of today’s traditional markets.
Spot BTC ETF Options can push the industry forward in this direction. Whether they actually will, remains to be seen.