BlackRock has argued that the U.S. Securities and Exchange Commission has no legitimate reason to treat applications for spot crypto and crypto futures exchange-traded funds differently.
BlackRock’s plan for a spot Ether (ETH) ETF called “iShares Ethereum Trust” was officially confirmed on November 9 after Nasdaq filed Form 19b-4 with the SEC on behalf of the company.
In its filing, BlackRock questioned the SEC’s treatment of spot crypto ETFs, as it alleged that the agency bases its reasons for continually rejecting these applications on false regulatory distinctions between futures and spot ETFs.
“Given that the Commission has approved ETFs that provide exposure to ETH futures, the price of which is itself based on the underlying spot ETH market, the Sponsor believes that the Commission must also approve ETPs that provide exposure to spot ETH.”
I took Scott’s advice and read Blackrock’s arguments for approving a spot ETH ETF.
It’s very convincing.
The argument stems from Grayscale’s victory in the DC Circuit: the SEC cannot lawfully approve ETH futures ETFs, but cannot legally approve a spot ETF of ETH. I agree.
Read here: https://t.co/7mwYNWDHRo https://t.co/fAgVBnOBZZ
— Jake Chervinsky (@jchervinsky) November 10, 2023
The SEC has yet to greenlight a single spot crypto ETF application, but has approved a variety of crypto futures ETFs.
The securities regulator has noted that this is because crypto futures ETFs are said to have better regulation/consumer protections under the 1940 Act than the 1933 Act that covers spot crypto ETFs.
Additionally, the SEC also appears to favor the regulatory and oversight arrangements over the Chicago Mercantile Exchange (CME) digital asset futures market.
However, BlackRock argues that the SEC’s preference for the 1940 Act has no relevance in this area because it imposes “certain restrictions on ETFs and ETF sponsors” rather than on the ETFs’ underlying assets.
“In particular, none of these restrictions apply to the underlying assets of an ETF, whether ETH futures or spot ETH, or to the markets from which the prices of such assets are derived, whether the CME ETH futures market or the spot ETH markets.”
“Therefore, the Sponsor believes that the distinction between the registration of ETH futures ETFs under the 1940 Act and the registration of spot ETPs under the 1933 Act makes no difference in the context of ETH-based ETP proposals. “
Related: The BlackRock iShares Ethereum Trust is registered in Delaware
BlackRock explained that by approving crypto futures ETFs through the CME, the SEC “has clearly established that CME surveillance can detect spot market fraud that would impact spot ETPs.”
Therefore, from the Company’s perspective, the SEC essentially has no legitimate reason to reject the application based on its current thinking.
I suggest reading this 19b-4 filing carefully, particularly the arguments presented in the Applicable Standard section (beginning on page 12). Keep an eye on (1) the ’40 Act/’33 Act discussion and (2) test analysis of key markets.
It will probably serve you well in the future. https://t.co/tlemiQzgbr
— Scott Johnsson (@SGJohnsson) November 9, 2023
Crypto and ETF analysts widely believe that the first SEC approval of a spot crypto ETF – in the form of a Bitcoin-related ETF – is imminent.
Bloomberg ETF analysts James Seyffart and Eric Balchunas believe there is a 90% chance of approval sometime before January 10 next year.
Magazine: Crypto Regulation – Does SEC Chairman Gary Gensler have the final say?