Ethereum reached a significant milestone this month when the Securities and Exchange Commission approved options trading for several spot Ethereum exchange-traded funds, potentially bolstering the cryptocurrency's market position despite recent price declines. BlackRock's iShares Ethereum Trust became the first to list options on the Nasdaq ISE, followed by offerings from Grayscale and Bitwise on the Cboe BZX exchange.
What to Know:
- Ethereum's price has fallen 51.3% since the beginning of 2025, hitting its lowest point since March 2023
- The ETH/BTC ratio has reached a five-year low, indicating Bitcoin's growing dominance
- Options trading could increase liquidity and attract institutional investors, though Ethereum's smaller market cap ($190 billion vs. Bitcoin's $1.65 trillion) makes it vulnerable to gamma squeezes
Market Impact and Institutional Adoption
The SEC approval comes at a critical time for Ethereum, which has struggled in recent months. Its market dominance has fallen below 17%, and large holders have been selling substantial amounts, putting downward pressure on prices.
The ETH/BTC ratio has hit a five-year low, highlighting Bitcoin's growing dominance in the cryptocurrency space.
"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," said Martins Benkitis, CEO and Co-Founder of Gravity Team.
This development follows the SEC's initial approval of Ethereum ETFs in July 2024, which allowed traditional investors to gain exposure to the cryptocurrency without directly holding the asset. The addition of options trading expands these benefits by creating more sophisticated investment opportunities. Investors can now hedge positions and implement more complex strategies through familiar investment vehicles.
"It will provide additional opportunities for portfolio diversification and create more avenues for ETH-based products," Vivien Lin, Chief Product Officer at BingX, told BeInCrypto. "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."
The introduction of options is expected to increase market liquidity as more participants enter the space. High initial trading volumes will likely follow, similar to what occurred when Bitcoin ETF options launched in late 2024.
Potential Risks and Market Dynamics
While the new options market offers opportunities, it also introduces risks. Derivatives trader Gordon Grant explained that options markets typically improve liquidity in spot markets. However, Ethereum's relatively small market capitalization—$190 billion compared to Bitcoin's $1.65 trillion—makes it particularly vulnerable to price volatility.
Joshua Lim, Global Co-head of Markets at FalconX, warned about potential market instability. "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," he told BeInCrypto.
A gamma squeeze occurs when market makers hedge their positions by buying the underlying asset, creating a positive feedback loop that can drive prices higher. This situation could be particularly pronounced for Ethereum due to its smaller market size.
Arbitrage opportunities are also expected to emerge as traders exploit price differences across different platforms. Grant anticipates increased arbitrage between Deribit, CME, and spot Ethereum options markets.
"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," Grant said.
These market dynamics will likely evolve as the Ethereum options market matures. Initial volatility could give way to more stable pricing as arbitrage activities refine the market structure and improve liquidity conditions.
Ethereum vs. Bitcoin: Closing the Gap?
Despite this regulatory milestone, Ethereum still faces significant competition from Bitcoin. When BlackRock's iShares Bitcoin Trust began offering options in late 2024, it experienced strong trading volumes from both retail and institutional investors. The question remains whether Ethereum can use this development to close the gap with its larger rival.
Kadan Stadelmann, Chief Technology Officer of Komodo Platform, remains skeptical. "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," he told BeInCrypto.
Stadelmann doubts that Ethereum will overtake Bitcoin in market capitalization—an event often referred to as "the flippening"—in the near future. "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," he concluded.
Nevertheless, Benkitis sees the options approval as a significant boost for Ethereum's institutional credibility. "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," he explained.
The introduction of options trading adds another layer of legitimacy to Ethereum within traditional financial markets. Whether this development will be enough to significantly improve its market position remains to be seen.
Closing Thoughts
The SEC's approval of options trading for Ethereum ETFs represents a significant step forward in cryptocurrency's integration with traditional finance. While Ethereum faces continued market pressure and stiff competition from Bitcoin, this development provides new opportunities for investors and could strengthen Ethereum's institutional presence. The coming months will reveal whether these new financial instruments can help reverse Ethereum's recent market decline.