This week, Nasdaq has submitted a rule change proposal to the SEC, focusing on the regulatory framework for spot Bitcoin and Ethereum ETF options: it plans to remove the previous special limit of approximately 25,000 contracts for a single entity, aligning it with the standards applied to other commodity fund options. This adjustment may seem like a mere technical tweak, but it touches on the long-standing reality of crypto-related financial products being under "special management" and "extra scrutiny," and it brings the market's attention back to a more direct question: after regulatory easing, who will be the first to amplify leverage and liquidity, and how will this change the structure of participants and the competitive landscape in crypto ETF derivatives?

From a 25,000 Contract Ceiling to Full Deregulation

● Origin of the Special Limit: After the approval of spot Bitcoin and Ethereum ETFs, their options were separately regulated, with a ceiling of about 25,000 contracts imposed. This figure is significantly lower than the actual holding space for many commodities or commodity fund options, reflecting regulatory concerns about the volatility and speculative nature of this new asset class, and objectively limiting the positioning and strategic depth of large institutions in this market.

● How the Rule is Being Removed: Nasdaq's current submission is a technical rule change that aims to "align" crypto ETF options, intending to directly eliminate the 25,000 contract exclusive limit and adopt the same holding and limit framework as other commodity fund options. In simpler terms, it means that Bitcoin and Ethereum ETF options will no longer have a set of "independent terms," but will be included under the existing general rules for commodity options, allowing risk control and limit logic to return to a unified template.

● Symbol of "Equal Treatment": Nasdaq emphasized in its explanation that this move is to ensure that crypto ETF options receive "equal treatment" with other commodity options. The implication behind this statement is not merely a marketing tactic, but a status upgrade in the regulatory context: shifting from being viewed as a "special variety" requiring extra oversight to being treated as "regular financial instruments" like gold and commodity index ETF options, marking a significant step in crypto-related products shedding their experimental label.

Regulatory and Market Tug-of-War: Easing of Special Controls

● Turning Point in Cautious Narrative: For a long time, the SEC has maintained a high level of caution regarding crypto-related financial products—from repeated delays in approving spot ETFs to imposing additional restrictions on options and leveraged products, the main logic has been "first control the scale and leverage, then gradually ease." In this context, the removal of the special holding limit is not a random event, but rather a regulatory acknowledgment: within the ETF framework, the risks of crypto assets can now be absorbed and managed under existing commodity rules.

● The Pull of Fairness and Stability: Market skepticism about the separate limits centers on whether they constitute "implicit discrimination" against certain assets and their related institutions. On one hand, regulators emphasize financial stability and investor protection, requiring additional buffers for high-volatility assets; on the other hand, exchanges and institutions argue that imposing a forced holding limit only on crypto-related products within the same ETF options framework distorts liquidity and price discovery, leading to an imbalanced competitive environment. This tension is the root of the extensive discussions sparked by this rule easing.

● Proactive Exchanges, Passive Regulators: This change was not initiated by the SEC but was proposed by Nasdaq, which then entered the review process with the SEC. This pathway reveals the rhythm of the game between Wall Street and regulators—exchanges represent potential business growth and institutional demand, attempting to align rules to promote product normalization; regulators assess systemic risks and public opinion pressures within the existing framework, seeking a defensible balance between "to ease or not to ease."

Liquidity Magnifier: Who Will Dare to Increase…

● Repricing of Market Making and Quoting Depth: Once the 25,000 contract ceiling is removed, market makers and professional institutions will see their roles in crypto ETF options expand. Previously, they often had to allocate positions carefully under limited ceilings to avoid hitting the cap; now, they can hedge and quote on a larger scale, making buy and sell orders thicker and more continuous, and the implied volatility curve of options may align more closely with true institutional pricing rather than being "choked" by regulatory limits.

● Leverage Management and Spot Feedback: The removal of the ceiling opens pathways for large funds to amplify leverage and finely manage volatility through options. Institutions can establish larger-scale protective puts, covered call strategies, and volatility trading combinations around spot Bitcoin and Ethereum ETFs, which will not only reform the transaction and holding structure of the options market itself but also impact the trading volume, bid-ask spreads, and price discovery efficiency of the spot ETFs through hedging and cross-asset arbitrage.

● Concentrated Holdings and Volatility Risk: However, the absence of a holding limit does not mean that risks disappear; rather, it may lead to concentrated risk explosions at certain points. If there is a lack of transparency or timely regulatory monitoring, highly concentrated holdings by a single or few institutions could trigger chain liquidations and volatility clustering in extreme market conditions, amplifying the magnitude of price "flash crashes" and "short-term surges." This is why, alongside the rule easing, risk control models and reporting mechanisms must be upgraded in tandem.

Bitcoin and Ethereum: Two Major Assets…

● Maturity and Expansion Phase Misalignment: The spot Bitcoin ETF has been operational for some time, with clearer paths for institutional participation, and market demand for its options leans more towards hedging and structured allocation; in contrast, the Ethereum ETF is still in the expansion phase of user education and asset allocation logic formation, with a more unstable options demand structure. After the ceiling is removed, the "maturity gap" between the two in the options market will be further amplified, providing space for funds to reallocate leverage and volatility between BTC and ETH.

● Redesigning Strategy Combinations: Common strategies for institutions across the two asset classes include using Bitcoin ETF options for directional and tail risk management, using Ethereum ETF options for volatility trading and as the underlying for structured products, and utilizing the correlation between the two for cross-asset arbitrage and spread trading. When the holding limits are removed, these strategies can be implemented on a larger scale, even layering futures and OTC derivatives to build multi-tiered combinations that respond to different risk appetites and return objectives.

● Spillover Effects of Product Pathways: The product pathway of "Bitcoin leading, Ethereum following" may seem like a simple replication, but each rule easing is interpreted by the market as a precursor to the next batch of assets. If the cancellation of the options holding limit operates smoothly, it could be seen as a regulatory vote of confidence in crypto ETFs as an asset class overall, thereby generating expectations for more crypto-related ETFs and the inclusion of more underlying assets, although this expansion still depends on subsequent policy attitudes.

Shadows of Traditional Commodity Funds: Crypto…

● Comparison with Gold, Silver, and Commodity Indices: In the options for gold, silver, and various commodity index ETFs, the market has long been accustomed to operating under unified rules—clear holding and limit frameworks, mature risk control indicators, and multi-layered participant structures. Nasdaq's emphasis on "equal treatment" essentially aims to incorporate crypto ETF options into this existing paradigm, ensuring they are no longer viewed as "special terms" within the regulatory system, but rather as a branch managed in parallel with gold and commodity index ETF options.

● Compliance and Risk Control Model Migration: When rules align, the adaptation costs for compliance teams and risk control models significantly decrease. Many institutions have previously kept their distance from crypto-related strategies largely because they needed to build separate approval and risk parameter systems for them; now, with key terms like holding limits unified with traditional commodity options, more institutions can directly reuse existing models and processes, making internal compliance easier to "pass."

● A Key Step Triggering Internal Release: For some large institutions, whether to participate in crypto-related strategies depends not only on return expectations but also on whether they can be explained and approved within the "traditional framework." This rule adjustment is expected to become a key trigger point in internal compliance discussions—when crypto ETF options are officially integrated into the traditional commodity options paradigm, many strategies that have previously remained in research or pilot stages may be upgraded to formal business lines.

Observing Crypto Finance Through a Rule Adjustment…

The action of removing the holding limit once again reminds the market: crypto ETFs are quietly shedding their identities as "experimental products" and "special case management," aligning closer to mainstream financial infrastructure. From the approval of spot ETFs to the alignment of options rules, regulators are embedding Bitcoin and Ethereum-related products into the existing financial regulatory framework rather than building a separate system for them.

If the SEC ultimately approves Nasdaq's rule change in the future and the implementation process goes relatively smoothly, the market's imaginative space will extend beyond just "larger holdings" to more complex derivative structures and a richer inclusion of underlying assets in the medium to long term: including more refined volatility products, more systematic cross-asset arbitrage tools, and combination ETFs and options matrices built around crypto assets.

It is also important to emphasize that the specific effective date and execution details remain uncertain; whether the rules can be implemented as originally proposed and whether new risk control requirements will be added during the execution process could lead to misalignments between regulatory progress and market expectations. In the inherently high-volatility environment of the crypto market, investors and institutions need to reserve sufficient risk buffers and position flexibility to accommodate price fluctuations caused by deviations in regulatory timing and policy implementation.

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