BlackRock questions SEC: No reason not to approve cryptocurrency spot ETF
BlackRock recently questioned the U.S. Securities and Exchange Commission (SEC), arguing that the distinction made by the SEC between "spot cryptocurrency ETFs" and "cryptocurrency futures ETFs" is not justified. BlackRock pointed out that although the SEC has not yet approved any applications for spot cryptocurrency ETFs, it has approved many cryptocurrency futures ETFs. The SEC stated that this is because cryptocurrency futures ETFs have better regulatory and consumer protection under the 1940 Act compared to spot cryptocurrency ETFs under the 1933 Act.
I took Scott's advice and read Blackrock's argument for approval of a spot ETH ETF.
It's very compelling.
The argument flows from Grayscale's DC Circuit victory: the SEC can't lawfully approve ETH futures ETFs but not a spot ETH ETF. I agree.
Read here: https://t.co/7mwYNWDHRo https://t.co/fAgVBnOBZZ
— Jake Chervinsky (@jchervinsky) November 10, 2023
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BlackRock Questions SEC's Rejection Reasons
Furthermore, BlackRock plans to launch a spot Ethereum ETH ETF called "iShares Ethereum Trust," and it has submitted a 19b-4 application to the SEC through Nasdaq representatives on November 9th.
In its application, BlackRock questions the SEC's handling of spot cryptocurrency ETFs, believing that the SEC's continued rejection of these applications is based on a mistaken regulatory distinction between futures and spot ETFs.
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BlackRock argues that since the SEC has approved a cryptocurrency futures ETF through the Chicago Mercantile Exchange (CME), this indicates that the SEC believes CME's regulation can detect fraudulent activities affecting the spot market of spot ETPs. Therefore, in BlackRock's view, this leaves the SEC with no reasonable grounds to reject the application according to current logic.
SEC's Theory Appears Forced
BlackRock further points out that the SEC's preference for the 1940 Act as an explanation seems forced, as the Act sets "certain limitations" on "ETFs" and "ETF issuers," not the underlying assets of ETFs.
BlackRock believes that registering an Ethereum futures ETF under the 1940 Act and registering a spot Ethereum ETP under the 1933 Act, in the context of the Ethereum-based ETP proposal, do not differ significantly.
Cryptocurrency and ETF analysts generally believe that the SEC's approval of the first spot cryptocurrency ETF, a Bitcoin ETF, is imminent. Bloomberg's ETF analysts James Seyffart and Eric Balchunas predict a 90% chance of this approval happening before January 10th next year.