As a Wall Street veteran in crypto, Caitlin Long has never shied away from calling things as she sees them, and when it comes to Wall Street’s growing interest in Bitcoin, she’s got a few choice words.

Speaking to Coinage in a recent interview, Long shared her view on the SEC's recent approval of options on the BlackRock Bitcoin ETF, and used it as a prime example of a phenomenon she’s been warning about for years: The entry of Wall Street into the crypto space comes with both opportunity and danger.

“It’s a double-edged sword,” Long said, referencing the typical leverage games that Wall Street is so adept at playing. “They privatize profits and socialize losses.” It’s a dynamic that anyone familiar with traditional finance knows all too well, and it’s one that has reared its head time and time again, whether in traditional equity markets or the now-infamous crypto exchange collapses like FTX.

The approval of options on the BlackRock ETF opens up a new dimension of financial engineering that could easily introduce leverage into Bitcoin’s price in ways we haven’t seen before. As Caitlin explained, “An ETF is a derivative. And then an option on an ETF is a derivative on a derivative.” It’s a classic case of stacking financial products on top of each other until the structure becomes dangerously fragile.

The issue with such layered financial products is that they can create feedback loops between the derivative price and the underlying spot price. “There’s a lot of leverage on the derivative itself, and there’s even more coming now with options,” she continued. “So the question is, which came first? The chicken or the egg? What drives the spot price?”

While the ETF market for Bitcoin isn’t yet large enough to dominate spot prices on its own, the introduction of options starts to shift that balance. There’s a real risk that the tail could start wagging the dog — meaning that the dynamics in the ETF and options market could begin to drive spot prices, rather than the other way around.

One of the key factors driving this dynamic is the speed at which ETF products now need to interact with the underlying market infrastructure. Caitlin pointed to an amendment to the BlackRock ETF that has forced Coinbase into 12-hour turnaround times for delivering Bitcoin. “Coinbase is being forced by Wall Street dynamics into a different dynamic than the underlying spot market had developed for Coinbase,” she said.

This shift toward faster turnaround times means that more trading activity is happening off-chain, which creates a host of new issues. “It just creates problems,” she explained. “This gets back to the whole discussion of intermediaries proving their reserves to show they are one-for-one backed.”

That’s the critical piece to watch as Wall Street continues to pour into Bitcoin ETFs. As Caitlin noted, these products have the potential to add layers of risk that could ripple through the broader market. But the SEC’s decision to require Bitcoin ETFs to be backed one-for-one with physical Bitcoin is, in her view, one of the few things the agency has done right. “Thank goodness the SEC is not allowing [these leverage games] to be applied at the spot market level,” she said. “That was smart of the SEC, one of the few things [SEC Chair] Gensler did do right.”

For now, Caitlin and others in the space are watching closely to see how the dynamics of the ETF and options markets play out. Whether the addition of these new products will bring stability and liquidity or trigger a new wave of volatility remains an open question. But one thing is clear: as Wall Street deepens its involvement in Bitcoin, the stakes are getting higher.