In a significant regulatory move, the U.S. Securities and Exchange Commission (SEC) has approved options trading for Ethereum spot exchange-traded funds (ETFs), nearly nine months after Nasdaq’s initial filing. This approval applies to the iShares Ethereum Trust (ETHA) and marks a key development in the integration of cryptocurrency into traditional financial markets.
The SEC’s decision to approve options trading comes in the form of a rule change that allows Nasdaq to list and trade options on shares of the Ethereum spot ETF. The options will provide investors with a cost-effective way to gain exposure to Ethereum (ETH), offering them leverage with limited capital and acting as a hedge against potential price declines.
Nasdaq announced that the newly approved options will be settled using American-style exercise and will function similarly to traditional ETF options. This allows investors to use puts as a protective measure against ETH price drops, and calls will offer low-cost exposure compared to outright ETF purchases. Additionally, investors will have the option to sell covered calls, generating passive income during periods of low volatility.
To mitigate concerns over market manipulation, Nasdaq has imposed a limit of 25,000 contracts on the Ethereum spot ETF’s trust and exercise. The SEC’s approval extends to several other Ethereum-based financial products, including Bitwise’s Ethereum ETF (ETHW), Fidelity’s Ethereum Fund (FETH), and the Grayscale Ethereum Trust (ETHE).
This approval comes on the heels of the SEC’s previous approval of staking on Fidelity’s Ethereum ETF, signaling the regulator’s evolving stance on cryptocurrency-related financial products. The SEC has also recently ruled that dollar-backed stablecoins, memecoins, and proof-of-work (PoW) mining tokens are not considered securities.
The SEC’s approval of options trading is framed within the context of U.S. securities law, specifically Section 6(b)(5) of the Securities Act, which aims to prevent fraudulent acts. The Commission is satisfied that Ethereum, the underlying asset of the options, is widely held and actively traded. The exercise limit and other safeguards are designed to protect investors from potential market manipulation.
Despite Ethereum’s recent price fluctuations, including a steep drop that left ETH hovering around $1,500, the SEC’s approval emphasizes the importance of adhering to existing broker-dealer conduct rules and the Financial Industry Regulatory Authority’s (FINRA) regulations.
Looking ahead, the SEC continues to process numerous filings, including those for XRP spot ETFs. Industry experts, such as Nate Geraci, suggest that further approvals could be forthcoming, signaling a broader acceptance of cryptocurrency-based investment vehicles in traditional financial markets.
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