SEC Approves Options Trading for BlackRock’s Bitcoin ETF on Nasdaq

TLDR:

• SEC approved Nasdaq listing of options for BlackRock’s Bitcoin ETF
• BlackRock sought approval since March 2024 after Bitcoin ETF approvals
• Nasdaq ISE made amendments to address manipulation and risk concerns
• Position limits set at 25,000 contracts for IBIT options
• Options will be physically settled with American-style exercise

The U.S. Securities and Exchange Commission (SEC) has given the green light for Nasdaq’s International Securities Exchange to list and trade options on BlackRock’s iShares Bitcoin Trust (IBIT).

BlackRock, one of the world’s largest asset managers, had been pursuing approval for this options listing since March 2024. The move followed the SEC’s earlier approval of multiple Bitcoin exchange-traded funds (ETFs) in the United States, which opened the door for more crypto-related financial products.

The path to approval involved several amendments submitted by Nasdaq ISE to address regulatory concerns. These amendments focused on potential market manipulation and excessive risk-taking in the emerging crypto options market.

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1. These will likely be VERY popular

The one thing we know about from BitMex, FTX and then Binance, is that people love leverage. The reason Arthur Hayes is worth so much is not his…

— Fred Krueger (@dotkrueger) September 21, 2024

A key change included setting position and exercise limits for options on IBIT at 25,000 contracts. Nasdaq described this limit as “extremely conservative” given the market size and the trust’s liquidity.

The approved options on IBIT will be physically settled, meaning that upon exercise, the underlying Bitcoin ETF shares will be delivered. They will also feature American-style exercise, allowing option holders to exercise their contracts at any time before expiration.

This flexibility provides investors with additional tools to manage their exposure to Bitcoin price movements.

BlackRock’s Bitcoin ETF has gained significant traction since its launch earlier in 2024. It has become one of the most liquid Bitcoin-related products in the U.S. market, attracting interest from both retail and institutional investors. The introduction of options on this ETF further expands the ecosystem of Bitcoin-linked financial products.

Despite the approval, the SEC’s decision comes amid ongoing debates about the risks associated with cryptocurrency derivatives.

During the review process, some comment letters expressed concerns about market volatility and the broader integration of crypto into traditional financial markets. Some commenters urged the SEC to delay approval until the Bitcoin market showed more stability.

However, the SEC determined that Nasdaq’s surveillance mechanisms were sufficient to address these concerns. These measures include real-time monitoring and inter-market surveillance-sharing agreements with the Chicago Mercantile Exchange (CME).

In a related development, Nasdaq has also filed a proposal with the SEC to list and trade options on a newly proposed iShares Ethereum Trust managed by BlackRock. This trust would hold Ethereum and cash, with custody provided by Coinbase and The Bank of New York Mellon, respectively. The proposal specifies that the trust will not engage in Ethereum proof-of-stake validation or use its assets for staking to earn additional income.

This move to introduce Ethereum options follows several requests to amend rules allowing for the listing of options tied to both Bitcoin and Ethereum ETFs in the U.S. These requests have faced some resistance due to market stability concerns.