BlackRock Challenges SEC’s Treatment of Spot-Crypto and Crypto-Futures ETFs

BlackRock Challenges SEC’s Treatment of Spot-Crypto and Crypto-Futures ETFs

BlackRock, the world’s largest asset management firm, has recently raised concerns regarding the differential treatment of spot-crypto and crypto-futures exchange-traded fund (ETF) applications by the U.S. Securities and Exchange Commission (SEC). In its pursuit of launching an iShares Ethereum Trust, a spot-Ether (ETH) ETF, BlackRock questions the regulatory distinctions made by the SEC and argues for a level playing field between spot-crypto and crypto-futures ETFs.

Unequal Treatment of Spot-Crypto ETFs

BlackRock’s application for the “iShares Ethereum Trust” was officially confirmed on November 9th, as Nasdaq submitted the necessary application forms to the SEC on behalf of the asset management firm. However, BlackRock raises concerns over the SEC’s treatment of spot-crypto ETFs, highlighting that the agency bases its repeated denials on outdated regulatory distinctions between futures and spot ETFs.

The SEC has yet to approve a single spot-crypto ETF application, while numerous crypto futures ETFs have received regulatory approval. The securities regulator justifies this disparity by claiming that crypto futures ETFs offer superior regulation and consumer protections under the 1940 Act, as compared to spot-crypto ETFs covered by the 1933 Act. Moreover, the SEC seems to favor regulation and surveillance-sharing agreements associated with the Chicago Mercantile Exchange’s digital asset futures market over other spot markets.

BlackRock contests the SEC’s preference for the 1940 Act, arguing that it is not relevant in this context as it places restrictions on ETFs and ETF sponsors rather than the underlying assets. The firm highlights that none of these restrictions address the underlying assets of ETFs, whether they are ETH futures or spot ETH, or the pricing derived from markets such as the CME ETH futures market or spot ETH markets.

The Role of CME Surveillance

Notably, BlackRock points out that the SEC has approved crypto futures ETFs via the Chicago Mercantile Exchange (CME), indicating that it has confidence in CME surveillance to detect any potential fraudulent activities in the spot market that could impact spot ETFs. Therefore, as per BlackRock’s perspective, this implies that the SEC lacks a valid reason to reject their spot-crypto ETF application based on the current regulations and practices.

The general consensus among crypto and ETF analysts is that the first approval of a spot-crypto ETF, possibly related to Bitcoin, is imminent. Bloomberg ETF analysts James Seyffart and Eric Balchunas even estimate a 90% chance of such approval occurring before January 10th of the coming year.

BlackRock’s challenge to the SEC’s unequal treatment of spot-crypto and crypto-futures ETFs underscores the need for regulatory clarity and consistency in the growing cryptocurrency market. As institutional investors seek exposure to digital assets, it becomes crucial for regulatory frameworks to adapt and provide equal opportunities for investors across different types of ETFs. The impending decision on BlackRock’s spot-Ether ETF and the future path paved by the SEC will have significant implications for the development and acceptance of cryptocurrencies in traditional financial markets.

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