BlackRock, a global investment management firm, has challenged the U.S. Securities and Exchange Commission (SEC) over its differential treatment of spot-crypto and crypto-futures exchange-traded fund (ETF) applications.
The firm, in its application for a spot-Ethereum (ETH) ETF named the “iShares Ethereum Trust,” raised concerns about the SEC’s regulatory distinctions between spot and futures ETFs, emphasizing that the agency’s denials for spot-crypto ETFs lack valid justifications.
The confirmation of BlackRock’s plan for the iShares Ethereum Trust came on November 9, with Nasdaq submitting the 19b-4 application form to the SEC on behalf of the investment giant. BlackRock questioned the SEC’s reliance on the 1940 Act, governing futures ETFs, as it argued that this regulatory framework is not relevant to both spot-crypto and crypto-futures ETFs.
The SEC has been hesitant to approve spot-crypto ETF applications but has given the green light to several crypto futures ETFs. The regulatory body contends that the 1940 Act provides better consumer protections for crypto futures ETFs compared to the 1933 Act, which covers spot-crypto ETFs. Furthermore, the SEC shows a preference for regulation and surveillance-sharing agreements with the Chicago Mercantile Exchange’s (CME) digital asset futures market.
I suggest reading this 19b-4 filing closely, specifically the arguments presented in the "Applicable Standard" section (starting pg 12). Keep an eye on (1) '40 Act/'33 Act discussion and (2) significant markets test analysis.
— Scott Johnsson (@SGJohnsson) November 9, 2023
It will likely serve you well in the future. https://t.co/tlemiQzgbr
BlackRock challenges this preference, stating that the 1940 Act imposes restrictions on ETFs and ETF sponsors, not on the underlying assets. The firm argues that this distinction is irrelevant in the context of ETF proposals based on Ethereum. BlackRock highlights that the SEC’s approval of crypto futures ETFs through the CME indicates confidence in the CME’s surveillance to detect spot-market fraud affecting spot ETFs.
As a result, BlackRock believes that the SEC lacks a justifiable reason to reject the application based on its current regulatory perspective.
The investment firm’s stance challenges the SEC’s ongoing differentiation between spot-crypto and crypto-futures ETFs, suggesting that the approval of a spot crypto ETF, particularly one related to Bitcoin, is imminent. Bloomberg ETF analysts James Seyffart and Eric Balchunas predict a 90% chance of approval before January 10th next year.
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