BlackRock Challenges SEC Over Unequal Treatment of Spot-Crypto and Futures ETFs
Summary:
BlackRock argues that the U.S. Securities and Exchange Commission (SEC) has no solid grounds for differing treatment of spot-crypto and futures exchange-traded fund (ETF) applications. While the SEC has approved crypto futures ETFs, it has yet to greenlight a spot-crypto ETF. BlackRock believes that since the SEC has already approved ETFs that offer exposure to crypto futures, it should do the same for those that offer exposure to spot crypto. The firm also challenges SEC's preference for the regulatory framework provided by the 1940 Act, citing it as irrelevant to the ETFs' underlying assets.
BlackRock has put forth an argument stating that the U.S. Securities and Exchange Commission's differing treatment of spot-crypto and futures exchange-traded fund applications has no valid cause. The firm's intention to launch an Ethereum (ETH) spot ETF, titled "iShares Ethereum Trust", was officially revealed on November 9, as Nasdaq filled out the 19b-4 form for the SEC on BlackRock's account. BlackRock scrutinized the SEC's handling of spot-crypto ETFs in their application, suggesting that the regulator's continuous rejections of such applications are based on incorrect disparities between futures and spot ETFs.
The firm's argument continues, “Following the Commission's approval of ETFs with ETH futures exposure, which are priced based on the spot ETH market itself, the Sponsor is of the belief that it also has to give approval to ETPs with exposure to spot ETH." Consequently, the SEC yet hasn't approved a single spot-crypto ETF application, although it has validated several crypto futures ETFs. The SEC has suggested this is due to the supposedly better regulation and consumer protections of the crypto futures ETFs under the 1940 Act, as opposed to spot-crypto ETFs under the 1933 Act.
Furthermore, the SEC has shown a preference for the regulation and surveillance-sharing agreements above the protocols in place for trading digital asset futures on the Chicago Mercantile Exchange (CME). BlackRock, however, disputes the SEC's inclination for the 1940 Act as it contains "specific restrictions on ETFs and their sponsors" and not the assets underlying the ETFs. "Interestingly, none of these limitations relate to the assets underpinning the ETF, whether ETH futures or spot ETH, or the markets these assets' prices are derived from, be it the CME ETH futures market or spot ETH markets.”
BlackRock summarized that if the SEC has approved crypto futures ETFs via the CME, it has "unmistakably determined that CME surveillance can flag spot-market fraud impacting spot ETPs." Thus, from the firm's perspective, it leaves the SEC without a defensible reason to dismiss the application considering its current thought process.
Crypto and ETF analysts generally believe that the SEC's first approval for a spot-crypto ETF— likely a Bitcoin-based one— is imminent. Bloomberg ETF analysts James Seyffart and Eric Balchunas have predicted a 90% chance of approval happening prior to January 10 of the coming year.
Published At
11/11/2023 4:31:56 AM
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