BlackRock has taken a stand against the U.S. Securities and Exchange Commission’s (SEC) treatment of spot-crypto and crypto-futures exchange-traded fund (ETF) applications. They are arguing that the SEC’s rationale for consistently denying spot-crypto ETFs is unfounded and that there should be no distinction between spot-crypto and crypto-futures ETFs. The latest development in this ongoing battle is BlackRock’s official confirmation on Nov. 9 of its plan to launch a spot-Ether (ETH) ETF called the “iShares Ethereum Trust” after Nasdaq submitted the 19b-4 application form to the SEC on its behalf.
In its application to the SEC, BlackRock challenged the regulatory distinctions the SEC has been making between spot and futures ETFs. Notably, the firm cited the fact that the Commission has approved ETFs that offer exposure to ETH futures, which are priced based on the underlying spot ETH market. BlackRock emphasized that this is evidence that the SEC should also approve ETFs that offer exposure to spot ETH.
It is important to note that the SEC has not approved any spot-crypto ETF applications, despite having approved several crypto futures ETFs. The SEC has justified this discrepancy by claiming that crypto futures ETFs are subject to supposedly superior regulation and consumer protections under the 1940 Act, as opposed to the 1933 Act that covers spot-crypto ETFs.
However, BlackRock has disputed this position, arguing that the SEC’s preference for the 1940 Act lacks relevance because it places restrictions on ETFs and ETF sponsors, not their underlying assets. Moreover, BlackRock emphasized that the distinction between the registration of ETH futures ETFs under the 1940 Act and the registration of spot ETH ETPs under the 1933 Act is essentially meaningless in the context of ETF proposals.
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BlackRock further pointed out that the SEC has approved crypto futures ETFs linked to the Chicago Mercantile Exchange (CME), indicating that it views CME surveillance as capable of detecting spot-market fraud that could affect spot ETPs. Therefore, BlackRock believes that the SEC has no valid justification for rejecting spot-crypto ETF applications under its current framework.
Given the current dialogue between BlackRock and the SEC, most industry experts and analysts are of the opinion that the SEC’s approval of a spot-crypto ETF, particularly a Bitcoin-related one, is imminent. Bloomberg ETF analysts James Seyffart and Eric Balchunas have even predicted a 90% chance of approval before Jan. 10 of the following year.
The outcome of this debate will undoubtedly have a significant impact on the crypto and ETF markets, as well as how the SEC approaches the regulation of digital assets. BlackRock’s challenge of the SEC’s regulatory framework could pave the way for a more inclusive and equitable approach to the approval of spot-crypto ETFs, effectively bridging the gap between crypto-futures and spot-crypto ETFs in the eyes of the SEC.
