BlackRock argues that the SEC has no reason to treat crypto futures and ETFs differently.
BlackRock has argued that the US Securities and Exchange Commission has no legal basis to treat spot-crypto and crypto-futures exchange applications differently.
BlackRock's putative ether (ETAF) plan, called the iShares Ethereum Trust, was officially certified on Nov. 9 after Nasdaq filed a 19b-4 filing with the SEC on behalf of the firm.
In the filing, BlackRock questions the SEC's treatment of spot crypto ETFs, asserting that the agency's reasons for consistently denying these applications are based on a false regulatory distinction between futures and spot ETFs.
“Given the Commission's approval of ETFs that provide exposure to ETH futures whose value is based on the underlying ETH market, the sponsor believes that the Commission should approve ETFs that provide exposure to ETH.”
I took Scott's advice and read BlackRock's argument for spot ETH ETF approval.
It is very compelling.
The argument flows from Greyscale's DC Circuit victory: The SEC cannot legally approve ETH futures ETFs, but not a spot ETH ETF. i agree.
Read here: https://t.co/fAgVBnOBZZ
— Jake Chervinsky (@jchervinsky) November 10, 2023
The SEC has yet to greenlight a single spot-crypto ETF application, but it has approved several crypto futures ETFs.
The securities regulator says this is because crypto futures ETFs have superior regulatory/consumer protection under the 1940 law, as opposed to the 1933 Spanish-law covering crypto ETFs.
The SEC also appears to favor regulation and watch-sharing agreements on the Chicago Mercantile Exchange's (CME) digital asset futures market.
But Blackrock said the SEC's choice for the 1940 Act is irrelevant in this area because it places “certain restrictions on ETFs and ETF sponsors” and not the ETF's underlying assets.
“Specifically, none of these restrictions apply to the underlying assets of the ETF, ETH futures or spot ETH, or the markets where the prices of these assets are derived, whether the CME ETH futures market or the ETH markets.
“Consequently, the Sponsor believes that the difference between the registration of ETH futures ETFs under the 1940 Act and the registration of spot ETFs under the 1933 Act does not constitute an ETH-based ETP proposal.”
Related: BlackRock iShares Ethereum Trust registered in Delaware
As Blackrock SEC approves crypto futures ETFs through CME, CME's monitoring has clearly determined that it will detect spot market manipulation affecting spot ETFs.
As such, in the firm's eyes, the SEC would have no reason to reject an application under its current line of reasoning.
I suggest you read this 19b-4 file closely, especially the arguments presented in the “Practice Level” section (starting on page 12). Follow up with (1) '40 Act/'33 Act discussion and (2) significant market challenge analysis.
It may serve you well in the future. https://t.co/tlemiQzgbr
— Scott Johnson (@SGJohnsson) November 9, 2023
It is generally thought among crypto and ETF analysts that the first SEC-approved crypto ETF — one related to Bitcoin — is just around the corner.
Bloomberg EFF analysts James Seifert and Eric Balchunas predict a 90% chance of approval before January 10 next year.
Magazine: Crypto Regulation – Does SEC Chairman Gary Gensler Have Final Comments?
