BlackRock, a prominent investment management company, has recently made a compelling argument against the U.S. Securities and Exchange Commission’s (SEC) differential treatment of spot-crypto and crypto-futures exchange-traded fund (ETF) applications. In its pursuit to launch a spot-Ether (ETH) ETF known as the “iShares Ethereum Trust,” BlackRock has challenged the SEC’s regulatory distinctions between these two types of ETFs. This article aims to analyze BlackRock’s argument and explore its implications for the cryptocurrency market.
BlackRock’s application to the SEC served as a platform to question the basis for the agency’s consistent denial of spot crypto ETFs. The company argued that since the SEC had previously approved ETFs providing exposure to ETH futures, which derive their value from the underlying spot ETH market, they should also approve ETFs offering exposure to spot ETH. The SEC has yet to approve any spot-crypto ETF applications but has granted several crypto futures ETFs. This discrepancy in treatment raises concerns about the SEC’s regulatory approach.
The SEC’s preference for crypto futures ETFs is rooted in its belief that they offer superior regulatory oversight and consumer protections under the 1940 Act compared to spot-crypto ETFs covered by the 1933 Act. Moreover, the SEC seems to favor regulation and surveillance-sharing agreements with institutions like the Chicago Mercantile Exchange (CME) over other futures markets. However, BlackRock counters this argument by highlighting that the 1940 Act imposes restrictions on ETFs and sponsors rather than the underlying assets they represent.
BlackRock contends that the SEC’s emphasis on the 1940 Act is irrelevant when considering ETH-based ETF proposals. The company argues that neither the restrictions nor regulations address the underlying assets themselves, whether they are ETH futures or spot ETH. BlackRock points out that the SEC’s approval of crypto futures ETFs through the CME demonstrates their confidence in the exchange’s surveillance capabilities to detect fraudulent activities in the spot market. Therefore, BlackRock questions the logic behind the SEC’s differential treatment of spot-crypto and crypto-futures ETFs under the current regulatory framework.
The crypto and ETF community anticipates the SEC’s approval of the first spot-crypto ETF, particularly one related to Bitcoin. Bloomberg ETF analysts, James Seyffart and Eric Balchunas, estimate a 90% chance of approval before January 10 of the upcoming year. This forecast aligns with the general sentiment that the approval of a spot-crypto ETF is imminent.
BlackRock’s argument against the SEC’s differential treatment of spot-crypto and crypto-futures ETFs highlights significant regulatory concerns. The company challenges the SEC’s reliance on regulatory acts and emphasizes the need for consistent treatment of the underlying assets. As the cryptocurrency market continues to evolve, the decision surrounding ETF approvals will shape the landscape for investors and market participants. Ultimately, stakeholders hope for regulatory clarity, fair treatment, and equal opportunities for advancement in the growing digital asset space.