According to BlackRock, there is no justification for the U.S. Securities and Exchange Commission to handle applications for exchange-traded funds that are spot-crypto and crypto-futures differently.
On Nov 9, BlackRock’s proposal for an Ethereum (ETH) exchange-traded fund (ETF) known as the “iShares Ethereum Trust” became formally official when Nasdaq filed the 19b-4 application form with the SEC on the company’s behalf.
In its application, BlackRock questioned the SEC’s handling of spot cryptocurrency exchange-traded funds (ETFs), claiming that the agency incorrectly distinguishes between futures and spot ETFs for regulatory purposes, so it keeps rejecting these applications.
Considering the Commission’s approval of ETFs providing access to ETH futures, which derive their pricing from the underlying spot ETH market, the Sponsor asserts that the Commission should similarly approve ETPs offering exposure to spot ETH.
The SEC has not approved any spot-crypto ETF applications but has given numerous crypto futures ETFs the green light.
The securities regulator suggests that the distinction arises from the purportedly enhanced regulatory and consumer protection framework provided by the 1940 Act for crypto futures ETFs, in contrast to the coverage of spot-crypto ETFs under the 1933 Act.
Furthermore, the SEC prefers regulatory measures and agreements for sharing surveillance information over those associated with the Chicago Mercantile Exchange’s (CME) market for digital asset futures.
BlackRock Challenges SEC’s Regulatory Framework For Cryptocurrency ETFs
BlackRock argues, however, that the SEC’s preference for the 1940 Act lacks relevance in this area, as it places “certain restrictions on ETFs and ETF sponsors” and not the underlying assets of the ETFs.
Significantly, these limitations do not pertain to the fundamental assets of an ETF, be it ETH futures or spot ETH, nor do they apply to the markets influencing the pricing of such help, such as the CME ETH futures market or spot ETH markets.
Hence, the Sponsor asserts that the differentiation between registering ETH futures ETFs under the 1940 Act and registering spot ETH ETPs under the 1933 Act is essentially inconsequential in the context of proposals for ETH-based ETPs.
BlackRock stated that the SEC’s approval of cryptocurrency futures ETFs on the CME indicates a clear belief that CME surveillance can identify spot-market fraud that could impact spot ETPs.
Therefore, from the firm’s perspective, it essentially eliminates any valid justification for the SEC to reject the application based on its current reasoning.
Crypto and ETF analysts widely believe that the initial SEC approval for a spot crypto ETF, particularly one related to Bitcoin, is imminent.
Bloomberg ETF analysts James Seyffart and Eric Balchunas forecast a 90% likelihood of approval occurring before January 10 next year.
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The author’s views are for reference only and shall not constitute any investment advice. Please ensure you fully understand and assess the products and associated risks before purchasing.
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