WASHINGTON, D.C.—Director of Securities Policy Benjamin Schiffrin issued the following statement after the Securities and Exchange Commission (SEC) approved a proposed rule change filed by Nasdaq ISE, LLC, to list and trade options on the iShares Bitcoin Trust:

“The SEC compounded the mistake that it made earlier this year in approving spot bitcoin exchange-traded products (ETPs) by today approving the listing and trading of options on a spot bitcoin ETP. Despite the presence of well-known firms as issuers of spot bitcoin ETPs, which could give investors a false sense of security, spot bitcoin ETPs are essentially investments in bitcoin, and bitcoin is a notoriously volatile asset. The availability of options on a volatile product like spot bitcoin ETPs could leave a trail of destruction in its wake.

“Recent events have confirmed bitcoin’s volatility and the dangers to retail investors of spot bitcoin ETPs. In early August, bitcoin dropped 15% in a 24-hour period. At one point, it dropped 7% in an hour.  After rebounding throughout the month, bitcoin again dropped 7.5% over a week in early September. This coincided with bitcoin ETPs losing $1.2 billion over eight days. Unlike with past bitcoin crashes, these collapses were felt by a broader base of investors since retail investors have been the main buyers of spot bitcoin ETPs.

“Options trading on spot bitcoin ETPs will only further exacerbate the risks. Although options trading on spot bitcoin ETPs will inevitably be marketed to retail investors, options trades are typically unsuitable for retail investors even in the case of traditional securities such as stocks. Indeed, options trading, at least for retail investors, is essentially gambling. For example, between November 2019 and June 2021, retail investors lost over $2 billion trading options. So options trading is risky for retail investors generally. That risk will be compounded exponentially in the case of options on spot bitcoin ETPs.

“Today, the SEC failed to live up to its mission to protect investors and the markets by approving the rule change to list and trade options on a spot bitcoin ETP.”

See our comment letters here and here for more information.

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.