BlackRock is asking questions about why the SEC (Securities and Exchange Commission) prefers using the 1940 Act for overseeing futures ETFs. They argue that this approach doesn’t make sense for both crypto-spot and crypto-futures ETFs.
BlackRock is saying that the U.S. Securities and Exchange Commission (SEC) doesn’t really have a good reason to treat applications for crypto funds that focus on buying actual cryptocurrencies (spot-crypto) differently from those that deal with future contracts (crypto-futures). They’re questioning why there’s a distinction.
BlackRock Confirms Spot Ether ETF Plan
On November 9, BlackRock’s proposal for a spot-Ether (ETH) ETF, named the “iShares Ethereum Trust,” was officially confirmed. Nasdaq submitted the 19b-4 application form to the SEC on behalf of BlackRock.
In its application, BlackRock questions the SEC’s treatment of spot crypto ETFs, arguing that the agency consistently denies these applications based on incorrect regulatory distinctions between futures and spot ETFs.
BlackRock points out that the SEC has approved ETFs offering exposure to ETH futures, which are priced based on the underlying spot ETH market. Therefore, BlackRock believes that the Commission should also approve Exchange-Traded Products (ETPs) providing exposure to spot ETH.
I took Scott's advice and read Blackrock's argument for approval of a spot ETH ETF.
It's very compelling.
The argument flows from Grayscale's DC Circuit victory: the SEC can't lawfully approve ETH futures ETFs but not a spot ETH ETF. I agree.
Read here: https://t.co/7mwYNWDHRo https://t.co/fAgVBnOBZZ
— Jake Chervinsky (@jchervinsky) November 10, 2023
SEC’s Preference for Crypto Futures ETFs Questioned by BlackRock
Despite approving numerous crypto futures ETFs, the SEC has yet to give the green light to any spot-crypto ETF applications. The regulator justifies this by claiming that crypto futures ETFs, regulated under the 1940 Act, offer better consumer protection than spot-crypto ETFs, governed by the 1933 Act.
Moreover, the SEC seems to favor regulation and surveillance-sharing agreements over the Chicago Mercantile Exchange’s (CME’s) digital asset futures market. BlackRock challenges the SEC’s preference for the 1940 Act, arguing that it’s not relevant in this context as it imposes restrictions on ETFs and sponsors, not on the actual assets held by the ETFs.
BlackRock emphasizes that these restrictions don’t address the underlying assets, whether ETH futures or spot ETH, or the markets from which their pricing is derived, such as the CME ETH futures market or spot ETH markets.
BlackRock Questions SEC’s ETH Futures vs. Spot ETH ETP Distinction
BlackRock contends that the SEC’s differentiation in the registration process between ETH futures ETFs under the 1940 Act and spot ETH Exchange-Traded Products (ETPs) under the 1933 Act lacks significance in the context of ETH-based ETP proposals. According to BlackRock, the SEC’s approval of crypto futures ETFs through the CME indicates the regulator’s confidence in CME surveillance’s ability to detect spot-market fraud affecting spot ETPs.
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.
It will likely serve you well in the future. https://t.co/tlemiQzgbr
— Scott Johnsson (@SGJohnsson) November 9, 2023
BlackRock sees no justifiable reason for the SEC to reject the application based on its current stance. Many analysts in the crypto and ETF space anticipate the imminent approval of the first spot crypto ETF, particularly one related to Bitcoin.
Bloomberg ETF analysts James Seyffart and Eric Balchunas predict a 90% chance of approval before January 10 of the following year.
Important:Â Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
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