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Ethereum reached a notable milestone earlier this month when the US Securities and Exchange Commission (SEC) approved options trading for several spot exchange-traded funds (ETFs). The move is expected to increase liquidity, attract interest from institutional investors, and solidify Ethereum’s position as a major cryptocurrency.
Yet Ethereum’s smaller market cap relative to Bitcoin means it is also vulnerable to gamma squeezes, thereby increasing investor risks. BeInCrypto consulted an expert in derivatives trading and representatives from FalconX, BingX, Komodo Platform, and Gravity to analyze the potential impact of this new characteristic.
The Ethereum community rejoiced earlier this month when the SEC approved options trading for existing Ethereum ETFs. This approval marks a significant regulatory development for digital assets.
This week marked the official debut of options trading for spot Ethereum ETFs in the United States. BlackRock’s iShares Ethereum Trust (ETHA) was the first to list options, with trading commencing on the Nasdaq ISE.
Shortly after, a broader availability of options followed, including those for the Grayscale Ethereum Trust (ETHE) and the Grayscale Ethereum Mini Trust (ETH), as well as the Bitwise Ethereum ETF (ETHW), all of which began trading on the Cboe BZX exchange.
This move allows a wider range of investors, beyond crypto traders, to benefit from hedging and speculation opportunities on Ethereum’s price through options on familiar investment vehicles like ETFs without direct ownership.
The timing of this news is particularly positive, as Ethereum has been losing some ground in the market lately.
A significant decline in market confidence surrounded Ethereum this week, with BeInCrypto reporting its price had plummeted to its lowest point since March 2023. This drop coincided with a broader market downturn, worsened by Donald Trump’s Liberation Day.
Further fueling this bearish sentiment, the ETH/BTC ratio has reached a five-year low, highlighting Bitcoin’s growing dominance over Ethereum.
Meanwhile, large Ethereum holders are increasingly selling off substantial amounts, putting downward pressure on their prices. Ethereum’s value has fallen sharply by 51.3% since the beginning of 2025, and investor confidence has waned, as evidenced by a decrease in addresses holding at least $1 million in ETH.
With options trading now accessible to more traders, experts anticipate that Ethereum’s market position will improve.
“ETH’s been leaking dominance, stuck sub-17%. Options give it institutional gravity. It becomes more programmable for fund strategies. More tools mean more use cases, which then in turn means more capital sticking around,” Martins Benkitis, CEO and Co-Founder of Gravity Team, predicted.
This newfound accessibility of options trading will create additional opportunities for investors and the broader Ethereum ecosystem.
The SEC’s approval of Ethereum ETFs in July 2024 was significant because it allowed traditional investors to enter the crypto market without directly holding the assets. Now, with options trading also available, these benefits are expected to be even greater.
“It will provide additional opportunities for portfolio diversification and create more avenues for ETH-based products. With options beyond the limited Bitcoin ETF offerings, investors may reconsider how they allocate their funds. This shift could result in more sophisticated trading strategies and greater participation in Ethereum-based products,” Vivien Lin, Chief Product Officer at BingX, told BeInCrypto.
The Ethereum ETF market will naturally become more liquid with increased participation through options trading.
The SEC’s fresh approval of options trading for Ethereum ETF investors suggests that the market will likely initially experience a high trading volume. As a result, market makers must be prepared.
An increase in call options will require institutional market makers to hedge by buying more Ethereum to meet demand.
“This is the canonically accepted dynamic of options markets bringing better liquidity to spot markets,” explained derivatives trader Gordon Grant.
Ethereum will also secure a unique advantage, particularly in institutional trading, enhancing its perceived quality and driving optimism among key market participants.
“ETH just got a serious institutional tailwind. With options now in play, Ether is stepping closer to BTC in terms of tradable instruments. This levels up ETH’s legitimacy and utility in hedging strategies, narrowing the gap on Bitcoin’s dominance narrative,” Benkitis told BeInCrypto.
Yet, rapid surges in options trading could also have unintended consequences on Ethereum’s price, especially in the short run.
As market makers rush to acquire more of the underlying asset in case of a higher volume of options calls, Ethereum’s price will naturally increase. This situation could lead to a pronounced gamma squeeze.
When market makers hedge their positions in this scenario, the resulting buying pressure would create a positive feedback loop. Retail investors will feel more inclined to join in, hoping to profit from Ethereum’s rising price.
The implications of this scenario are especially pronounced for Ethereum, considering its market capitalization is notably smaller than that of Bitcoin.
Retail traders’ aggressive buying of ETHA call options could compel market makers to hedge by acquiring the underlying ETHA shares, potentially leading to a more pronounced effect on the price of ETHA and, by extension, Ethereum.
“We believe option sellers will generally dominate in the long-run but in short bursts we could see retail momentum traders become massive buyers of ETHA calls and create gamma squeeze effects, similar to what we’ve seen on meme coin stocks like GME. ETH will be easier to squeeze than BTC given it is only $190 billion market cap vs BTC’s $1.65 trillion,” Joshua Lim, Global Co-head of Markets at FalconX, told BeInCrypto.
Meanwhile, Grant predicts arbitrage-driven flows will further exacerbate price swings.
Experienced investors in options trading may pursue arbitrage to gain profits and reduce risk exposure.
Arbitrage involves exploiting price differences for the same or nearly identical assets across different markets or forms. This is done by buying in the cheaper market and selling in the more expensive one.
According to Grant, traders will increasingly look for and exploit these price differences as the market for ETH options on different platforms develops.
“I would expect more arbitrage behaviors between deribit CME and spot eth options and while one sided flows across all three markets could be temporarily destabilizing, greater liquidity through a diverse array of venues should ultimately dampen the extrema of positioning driven dislocations and the frequency of such dislocations. For instance, it appears –anecdotally as the data is still inchoate– that vol variance on btc is declining post intro of iBit options,” he explained.
While arbitrage activity is expected to refine pricing and liquidity within the Ethereum options market, the asset continues to operate under the shadow of Bitcoin’s established market leadership.
Though Ethereum achieved a major landmark this week, it faces competition from a major rival: Bitcoin.
In late fall of 2024, options trading started on BlackRock’s iShares Bitcoin Trust (IBIT), becoming the first US spot Bitcoin ETF to offer options. Though not even a year has passed since the original launch, options trading on Bitcoin ETFs experienced strong trading volumes from retail and institutional investors.
According to Kadan Stadelmann, Chief Technology Officer of Komodo Platform, options trading for Ethereum ETFs will be comparatively underwhelming. Bitcoin will still be the cryptocurrency of choice for investors.
“Compared to Bitcoin’s Spot ETF, Ethereum’s ETF has not seen such stalwart demand. While options trading adds institutional capital, Bitcoin remains crypto’s first mover and enjoys a greater overall market cap. It is not going anywhere. It will remain the dominant crypto asset for institutional portfolios,” Stadelmann told BeInCrypto.
Consequently, his outlook does not include Ethereum’s market position surpassing Bitcoin’s in the immediate term.
“The once-promised flippening of Bitcoin’s market capitalization by Ethereum remains unlikely. Conservative and more-monied investors likely prefer Bitcoin due to its perceived safety compared to other crypto assets, including Ethereum. Ethereum, in order to achieve Bitcoin’s prominence, must depend on growing utility in DeFi and stablecoin markets,” he concluded.
While that may be the case, options trading doesn’t harm Ethereum’s prospects; it only strengthens them.
Ethereum is now the second cryptocurrency with SEC approval for options trading on its ETFs. This single move will further legitimize digital assets for institutions, increasing their presence in traditional markets and boosting overall visibility.
Despite recent significant blows to Ethereum’s market position, this news is a positive development. Although it might not be sufficient to surpass its primary competitor, it represents a step in the right direction.
As investors get used to this new opportunity, their participation level will reveal how beneficial it will be for Ethereum.
The post Ethereum ETF Options Launch Amid Market Headwinds: A Potential Turning Point? appeared first on BeInCrypto.
Regulatory sandboxes have emerged as a concept to drive innovation in a controlled setting. They allow companies to test new crypto products and services while regulators observe and adapt regulations. While jurisdictions like the UK, the UAE, and Singapore have already created sandboxes, the US has yet to create one at the federal level.
BeInCrypto spoke with representatives of OilXCoin and Asset Token Ventures LLC to understand what the US needs to build a federal regulatory sandbox and how it can unify a fragmented testing environment for innovators.
As the name suggests, regulatory sandboxes have emerged as a tool for providing a controlled testing ground. This environment allows entrepreneurs, businesses, industry leaders, and lawmakers to interact with new and innovative products.
According to the Institute for Reforming Government, 14 states in the United States currently have regulatory sandboxes for fintech innovation.
Of those, 11 are industry-specific and cover other sectors like artificial intelligence, real estate, insurance, child care, healthcare, and education.
Utah, Arizona, and Kentucky are the only jurisdictions among these states with an all-inclusive sandbox. Meanwhile, all but 12 states are currently considering legislation to create some regulatory sandbox for innovation.
Due to its relatively short existence, the crypto market has underdeveloped legislation. While state-level sandboxes enable innovators to demonstrate their products’ capabilities to the public, they are significantly constrained by the lack of federal regulatory sandboxes.
Though statewide efforts to create regulatory sandboxes are vital for innovation, entrepreneurs and businesses still face constraints in developing across borders or reaching an audience at a national level.
“The existing state-level regulatory sandboxes in the US have provided some room for innovation, but they remain limited in scope and impact. Operating at the state-level means they lack the scale and consistency needed to provide meaningful regulatory clarity for businesses operating across multiple jurisdictions,” Dave Rademacher, Co-founder of OilXCoin, told BeInCrypto.
Rapid advancements in fields like blockchain and artificial intelligence (AI) add a particular layer of uncertainty, given that existing legal frameworks may not be well-suited to these technologies.
“Since crypto and blockchain technologies inherently function on a global scale, a fragmented regulatory environment makes compliance difficult and creates uncertainty for both startups and institutional investors,” Rademacher added.
At the same time, regulators may face difficulties in developing appropriate rules for these technologies due to a potential lack of familiarity with these constantly changing industries.
As a result, industry participants are increasingly calling for creating a federal regulatory sandbox. This environment could be a collaborative framework to address the gap, facilitating communication and knowledge sharing between regulators and industry stakeholders.
“The implementation of a federal regulatory sandbox in the United States has the potential to significantly enhance both innovation and regulatory oversight by reducing the uncertainties often associated with navigating the regulatory landscape across state lines. Such an initiative could help establish a coherent framework characterized by uniformity, continuity, and a conducive environment for innovation,” said Paul Talbert, Managing Director of ATV Fund.
According to Rademacher and Talbert, this proposal would meet the needs of all players involved.
A sandbox provides innovators with a controlled environment to test products under regulatory oversight without the immediate burden of full compliance with rules that may not yet fit their technology.
It also allows regulators to acquire firsthand insights into blockchain applications, facilitating the creation of more knowledgeable and flexible regulatory policies.
“Startups should have clear eligibility criteria to determine their qualification for participation, while regulators must outline specific objectives—whether focused on refining token classification frameworks, testing DeFi applications, or improving compliance processes,” Rademacher said.
It could also help the United States reinforce its position as a leader in technological innovation.
“By fostering innovation through simplicity, regulatory certainty, and conducive environments, the United States can significantly strengthen its competitive position in the global fintech landscape,” Talbert added.
While the United States has stalled in creating a federal framework for fintech innovation, other jurisdictions around the world have already gained significant ground in this regard.
The Financial Conduct Authority (FCA), which regulates the United Kingdom’s financial services, launched the first regulatory sandbox in 2014 as part of Project Innovate. This initiative aimed to provide a controlled environment for testing innovative products.
The government asked the FCA to establish a regulatory process to promote new technology-based financial services and fintech and ensure consumer protection.
Following the UK’s lead, Abu Dhabi, Denmark, Canada, Hong Kong, and Singapore also established regulatory sandboxes.
The United Arab Emirates (UAE) and Singapore, in particular, have made progressive strides in creating federal regulatory sandboxes.
The UAE, for example, currently has four different sandboxes: the Abu Dhabi Global Market (ADGM) Regulation Lab, the DSFA Sandbox, the CBUAE FinTech Sandbox, and the DFF Regulation Lab.
Their focus areas include digital banking, blockchain, payment systems, AI, and autonomous transport.
Meanwhile, the Monetary Authority of Singapore (MAS) launched its Fintech Regulatory Sandbox in 2016. Three years later, MAS also launched the Sandbox Express, providing firms with a faster option for market testing certain low-risk activities in pre-defined environments.
“The success of regulatory sandboxes in jurisdictions such as the United Kingdom, Singapore, and the United Arab Emirates has highlighted the importance of key attributes: regulatory collaboration, transparent processes, continuous monitoring, and the allocation of dedicated resources. As a result, a growing number of jurisdictions worldwide are looking to replicate the frameworks established by these pioneering countries to strengthen their competitive position in the global fintech landscape,” Talbert said.
Rademacher believes these jurisdictions’ innovations should prompt the United States to accelerate its progress.
“Rather than focusing on maintaining a competitive edge, the priority should be on reclaiming lost ground. The US has lagged behind jurisdictions like the UAE and Singapore, which have implemented clear regulatory pathways that attract capital and talent. A federal sandbox would be a critical step in restoring the country’s leadership in financial innovation,” he said.
For that to happen, the United States must overcome certain hurdles.
A fragmented network of federal and state agencies overseeing financial services presents a key challenge to establishing a US federal regulatory sandbox.
“Unlike other countries with a single financial authority overseeing the market, the U.S. has multiple agencies—including the SEC, CFTC, and banking regulators—each with different perspectives on how digital assets should be classified and regulated. The lack of inter-agency coordination makes implementing a unified sandbox more complex than in jurisdictions with a single regulatory body,” Rademacher told BeInCrypto.
Yet, in recent years, important SEC and CFTC actors have expressed interest in adopting a more favorable regulatory approach to innovation.
In September 2023, when Caroline Pham was still a CFTC Commissioner, she proposed launching federal regulatory sandboxes or pilot programs to stay ahead of the innovation curve. SEC Commissioner Hester Peirce has made similar statements in the past.
“Even though I tend to be more of a beach than a sandbox type of regulator, sandboxes have proven effective in facilitating innovation in highly regulated sectors. Experience in the UK and elsewhere has shown that sandboxes can help innovators try out their innovations under real-world conditions. A sandbox can provide a viable path for smaller, disruptive firms to enter highly regulated markets to compete with larger incumbent firms,” Peirce said in a statement last May.
However, the full scope of national regulations far exceeds the authority of these two entities.
Any legislative measure to develop a federal regulatory framework for sandboxes in the United States would have to undergo Congressional approval. Talbert highlighted several potential constitutional dilemmas the promotion of an initiative of this nature may face.
“These dilemmas include issues related to the non-delegation doctrine, which raises concerns about the constitutionality of delegating legislative power; equal protection considerations under the Fifth Amendment’s Due Process Clause; challenges arising from the Supremacy Clause; and implications under the Administrative Procedure Act (APA) and principles of judicial review,” he said.
To address these complexities, Congress must enact clear legal boundaries that ensure a regulatory framework is both predictable and open. Given the current administration’s emphasis on technological innovation, the prospects for creating a sandbox appear positive.
“Given the current composition of Congress, which aligns with the political orientation of the new executive branch, there may be a timely opportunity for regulatory reform. Such reform could facilitate the creation of a cohesive federal regulatory framework and enhance collaboration among federal agencies,” Talbert told BeInCrypto.
However, creating a federal regulatory sandbox is not a one-size-fits-all solution.
State autonomy is enshrined in the US Constitution. This protection means that, even though a regulatory sandbox may exist at the national level, individual states still have the authority to restrict or prohibit sandboxes within their jurisdictions.
Encouragingly, most US states are already exploring regulatory sandboxes, and the states that have already implemented them represent diverse political viewpoints.
“Despite these hurdles, it is noteworthy that the establishment of state regulatory sandboxes has historically transcended partisan politics, with representatives from both major political parties recognizing the economic advantages of instituting regulatory frameworks that augment their states’ competitive positions,” Talbert said.
However, other considerations beyond political resistance must also be addressed.
“A federal regulatory sandbox might also face opposition from established financial institutions, including banks, which may perceive potential threats to their existing business models. Furthermore, federal budgetary constraints could impede the government’s capacity to support the development and maintenance of a federal regulatory framework,” Talbert added.
Effective federal regulations will also require a balance between businesses’ concerns and regulators’ responsibilities.
“The two biggest risks are overregulation—imposing excessive restrictions that undermine the sandbox’s purpose—or underregulation, failing to provide meaningful clarity. If the rules are too restrictive, businesses may avoid participation, limiting the sandbox’s effectiveness. If they are too lax, there is a risk of abuse or regulatory arbitrage. A well-executed federal regulatory sandbox should not become a bureaucratic burden but rather a dynamic framework that fosters responsible growth in the digital asset space,” Rademacher told BeInCrypto.
Ultimately, the best approach will require coordination from different governing bodies, industry stakeholders, and bipartisan collaboration.
Due to recent strained communication between tech and federal agencies, Rademacher believes fostering a cooperative atmosphere is essential for creating a functional federal sandbox.
“The approach must be collaborative rather than adversarial. Agencies should view the sandbox as an opportunity to refine regulations in real time, working alongside industry participants to develop policies that foster responsible innovation. Involvement from banking regulators and the Treasury Department could also be valuable in ensuring that digital assets are integrated into the broader financial system in a responsible manner,” he said.
Achieving this requires a bipartisan approach to harmonizing regulatory goals and setting clear boundaries. Industry collaboration with lawmakers and regulators is vital to showing how a sandbox can promote responsible innovation while safeguarding consumers.
“Its success will ultimately depend on whether it serves as a bridge between innovation and regulation, rather than an additional layer of complexity,” Rademacher concluded.
The post US Industry Leaders Want a Federal Regulatory Sandbox for Fintech Innovation appeared first on BeInCrypto.
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