Grayscale lobbies SEC to approve options on spot bitcoin ETFs

By Thomson Reuters Feb 29, 2024 | 9:17 AM

By Hannah Lang

(Reuters) – Crypto asset manager Grayscale Investments is urging the U.S. securities regulator to greenlight options on its spot bitcoin exchange-traded fund, a move that would open the product to a new class of investors.

In a letter sent Wednesday to the Securities and Exchange Commission, Grayscale CEO Michael Sonnenshein said an SEC rejection of options on its Grayscale Bitcoin Trust would “unfairly discriminate” against its shareholders, noting that the regulator has previously approved options on ETFs tied to bitcoin futures.

“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,” Sonnenshein wrote.

Bitcoin is on track for a monthly gain of more than 47%, its largest since December 2020, as the ETFs have opened cryptocurrency to more investors. Asset managers have wasted little time in capitalizing on that excitement as they file proposals with the SEC for a second wave of more complex crypto products, including some that would use options to amplify bitcoin’s volatility.

Options give the holder the right to buy or sell an asset, such as a stock or exchange-traded product, at a predetermined price by a set date. Receiving regulatory approval for the products on the spate of new bitcoin ETFs could take months, Reuters reported earlier in February.

The SEC oversees technical rule changes that exchanges must make to list options, and typically approves them days after an ETF starts trading. But because regulators view bitcoin as a commodity, spot bitcoin ETF options may also require approval from the Commodity Futures Trading Commission (CFTC), which oversees commodity derivatives, complicating the regulatory process for approval.

Without the options, big investors, which analysts have said could help drive as much as $100 billion into the ETFs, face risk management issues, and could keep many at bay, experts have said.

Sonnenshein said that options would facilitate price discovery in the shares of the new ETFs, which would assist investors in navigating market conditions, hedging and generating income.

Options would also “further bring bitcoin into the regulatory perimeter by allowing additional regulated market participants” such as contract merchants and broker-dealers “to trade the products,” he said.

(Reporting by Hannah Lang in Washington; Editing by Ira Iosebashvili and Franklin Paul)