US Legislators Demand that SEC Accept Spot-Based Bitcoin ETF Alternatives

Reps. Flood and Nickel pressed the SEC to move quickly, arguing that the regulatory inconsistency was a concern. This regulatory reluctance reflects a previous judgment in which a D.C. court rejected the SEC’s Grayscale spot bitcoin ETF as “arbitrary and capricious.” 

With an appreciative nudge of cryptocurrency investment opportunities, Representatives Wiley Nickel, D-N.C., and Mike Flood, R-Neb., are asking the Securities and Exchange Commission (SEC) to approve the listing and trading of options on spot bitcoin exchange-traded funds (ETFs). 

The legislators pointed out in a letter to SEC Chair Gary Gensler an approval of spot bitcoin ETFs by the agency in January, which have attracted billions in investment, according to Axios. 

Reps. Flood and Nickel pressed the SEC to move quickly, arguing that the regulatory inconsistency was a concern. In their letter, they noted:

"We urge you, without delay, to either approve options on spot bitcoin ETPs or to provide an explanation for the Commission's difference in treatment between options for Bitcoin futures ETFs — which are currently trading — and options for the spot bitcoin ETPs."  

This is not their first action advocating for cryptocurrency; both were members of a group that had earlier pushed Chairman Gensler to approve the spot bitcoin ETFs in September.

Although these approved spot bitcoin ETFs have performed well, their take-up into options trading has been slow. 

The SEC has so far delayed options trading applications from large exchanges like Cboe Exchange, Inc., BOX Exchange LLC, MIAX International Securities Exchange LLC, Nasdaq ISE, LLC, and NYSE American LLC. 

This regulatory reluctance reflects a previous judgment where a D.C. court rejected the SEC’s Grayscale’s spot bitcoin ETF as “arbitrary and capricious,” leading to a court-ordered re-evaluation. 

The judges slammed the SEC for failing to apply its standards to similar financial products.

Reps. Nickel and Flood also compared the earlier court decision with their current plea, stressing the lack of uniformity in how the SEC treats cryptocurrency products.  

"It has been almost two months since NYSE applied for the listing of options on spot Bitcoin ETFs," they wrote. "In the case of Bitcoin Futures ETFs, the SEC permitted options to be listed and begin trading the very next day. Why the difference in treatment?" 

Their letter is just one part of an ongoing conversation that takes place both within Congress and beyond regarding the SEC's actions in the cryptocurrency market structure and the need for a clearer regulatory framework that promotes innovation without sacrificing market stability. 

What Are Bitcoin Options?

Bitcoin options are financial derivatives that allow investors to buy or sell Bitcoin at a predetermined price by a specific future date, offering a way to speculate on price movements or hedge investments without the obligation to execute the trade. 

The alternatives mimic those of regular markets such as stocks, indices, or commodities, but their underlying asset is Bitcoin.

Although Bitcoin options look like traditional financial instruments, they are younger and less liquid than standard options. 

This liquidity deficit is primarily associated with the crypto market's limited size compared to established financial sectors, including stocks and precious metals. Therefore, this lower market depth can result in larger price moves, particularly for options with longer expiration times.

Time decay is one of the most important dynamics in trading Bitcoin options. Near the end date, an option’s value usually drops, reflecting the shorter time to exercise the option. This feature introduces a level of complication to the trading process, making Bitcoin options trading more complex than simple spot trading.