Bitcoin ETF Rumor Had a Silver Lining and It's Apparent in the Crypto Options Market

The bitcoin options market has flipped bullish across different timeframes since Monday's erroneous ETF report.

AccessTimeIconOct 19, 2023 at 11:11 a.m. UTC
Updated Oct 19, 2023 at 4:16 p.m. UTC
  • Monday's rumor-led pop in BTC showed there is plenty of dry powder waiting to cheer SEC's potential ETF approval.
  • Bullish sentiment has returned to the options market since the mistaken report.

Monday's false report that the U.S. Securities and Exchange Commission (SEC) had approved BlackRock's spot bitcoin (BTC) exchange-traded fund (ETF) saw the cryptocurrency spike 10% to $30,000 before quickly settling back to $28,000.

The rumor-led price swing was perhaps bad optics for the crypto industry, validating the SEC's persistent concerns about manipulation and surveillance shortcomings.

That said, it had a silver lining. The rally shows there's plenty of dry powder waiting to enter the market on approval of such an ETF. Monday's pop also challenged the notion that approval has been priced in.

"The short-lived pump we saw on the back of fake news on ETF approval provided a preview of what is to come in the event of BTC spot ETF approvals," said Dick Lo, the founder and CEO of quant-driven crypto trading firm TDX Strategies. "The fact that BTC is holding well above $28k is encouraging and potentially shows that the market are under-invested and may be inclined to start building positions."

Speculation is rife the SEC could approve the first U.S.-based spot ETF early next year after the regulator missed a deadline to appeal against a U.S. court verdict that set aside its decision to reject Grayscale Investments' attempt to convert the Grayscale Bitcoin Trust (GBTC) into a spot ETF. Grayscale is owned by DCG, the parent company of CoinDesk.

"With the SEC missing the deadline and actively engaging with other ETF issuers, the odds of spot ETF approvals appear to be near-certain, with the expectation that a batch of spot ETFs may be approved on or before 10-Jan-2024 (the final deadline for the Ark 21Shares application), which is just 83 days to go," Lo said.

Analysts at Blockware Solutions voiced a similar opinion, saying the price jump was a sign of what is to come once the ETF is approved.

"The timeline for approval remains uncertain, but one thing that is not uncertain is that the BTC price will move up rapidly once approval happens. At this point, ETF approval is a 'when', not an 'if,'" the analysts said in an email.

Perhaps, in the near term, bears may be more cautious in expressing their opinion in the market. The way bitcoin options have been priced since the rumor suggests that.

BTC's call-put skew

The 30- and 60-day call-put skews, which measure the cost of call options relative to puts, have risen above zero, joining the longer duration skews in signaling a bullish bias.

A call option gives the purchaser the right, but not the obligation to, buy the underlying asset at a predetermined price on or before a specific date. A put gives the right to sell.

Sentiment in the ether options market has also improved, although the bias for calls is still relatively weaker than in bitcoin.

"A significant disparity in skew pricing between BTC and ETH is most apparent in the 1–3-month segment of the curve," Options Insights founder Imran Lakha said in a blog post at Deribit. "This trend indicates market speculation that Bitcoin may see substantial relative gains, possibly due to anticipated ETF approval within this timeframe."

Edited by Sheldon Reback.


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.