BlackRock argued that the SEC had no legitimate reason to treat ETF applications for spot cryptocurrencies and crypto futures differently.
BlackRock’s plan to create an Ethereum (ETH) spot currency ETF called “iShares Ethereum Trust” was officially confirmed on November 9, after Nasdaq filed a 19b-4 application form with the Securities and Exchange Commission on behalf of the company.
in it to requestBlackRock called into question the SEC’s treatment of spot cryptocurrency ETFs, asserting that the agency bases its reasons for consistently rejecting these applications on incorrect regulatory differences between futures and spot ETFs.
“Given that the Commission has approved ETFs that provide exposure to Ethereum futures, which are themselves priced based on the underlying Ethereum spot market, the Sponsor believes the Commission should also approve ETFs that offer exposure to Ethereum spot contracts.”
I took Scott’s advice and read Blackrock’s argument for approving a spot ETH ETF.
It’s very convincing.
The argument flows from Grayscale’s DC Circuit victory: The SEC cannot legally approve ETH futures ETFs but not a spot ETH ETF. I agree.
I read here: https://t.co/7mwYNWDHRo https://t.co/fAgVBnOBZZ
— Jake Chervinsky (@jchervinsky) November 10, 2023
The SEC has not yet given the green light to a single application for spot cryptocurrency ETFs, but it has approved a group of cryptocurrency futures ETFs,
The SEC noted that this is because crypto futures ETFs have superior regulatory/consumer protections under the 1940 Act rather than the 1933 Act covering spot crypto ETFs.
In addition, the SEC also appears to favor regulation and surveillance sharing agreements on the digital asset futures market on the Chicago Mercantile Exchange (CME).
However, BlackRock argues that the SEC’s preference for the 1940 Act lacks relevance in this area, because it places “certain restrictions on ETFs and ETF sponsors” and not the underlying assets of the ETFs.
“It is noteworthy that none of these restrictions address the underlying assets of the ETFs, whether ETH futures or ETH spot markets, or the markets from which the pricing of such assets is derived, whether the CME ETH futures market or ETH spot markets.”
“As a result, Sponsor believes that the distinction between registration of Ethereum futures ETFs under the 1940 Act and registration of Ethereum futures ETFs under the 1933 Act is a distinction without distinction in the context of the Ethereum-based ETF proposals.”
Related: BlackRock iShares Ethereum Trust is registered in Delaware
BlackRock explained that since the SEC has approved CME cryptocurrency futures ETFs, it has “clearly determined that CME surveillance can detect fraud in the spot market that would impact spot ETFs.” “.
As such, in the company’s view, it leaves the SEC no justifiable reason to deny the application under its current line of reasoning.
I suggest reading this 19b-4 filing closely, specifically the arguments presented in the “Applicable Standard” section (starting on page 12). Observe (1) the Law 40/Law 33 discussion and (2) the Important Markets Test analysis.
It will likely serve you well in the future. https://t.co/tlemiQzgbr
– Scott Johnson (@SGJohnsson) November 9, 2023
It is generally believed among cryptocurrency and ETF analysts that the first SEC approval for a spot cryptocurrency ETF — in the form of a bitcoin-linked fund — is still just around the corner.
Bloomberg ETF analysts James Seyfart and Eric Balchunas expect there is a 90% chance of approval sometime before January 10 of next year.
magazine: Cryptocurrency Regulation – Does SEC Chairman Gary Gensler Have the Final Say?
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