BlackRock Challenges SEC’s Distinction Between Spot-Crypto and Crypto-Futures ETFs

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Key Takeaways 

  • BlackRock asserts reasons for consistently denying spot crypto ETFs are based on incorrect regulatory frameworks.
  • BlackRock questions the SEC’s regulatory distinctions between these two types of ETFs

In a significant development for the cryptocurrency market, BlackRock, the world’s largest asset manager, has formally submitted an application for a spot-Ethereum (ETH) exchange-traded fund (ETF) known as the “iShares Ethereum Trust.” 

The confirmation of this plan came on November 9, with Nasdaq submitting the necessary 19b-4 application form to the U.S. Securities and Exchange Commission (SEC) on BlackRock’s behalf.

BlackRock’s move has added fuel to the ongoing debate surrounding the SEC’s treatment of spot-crypto and crypto-futures ETF applications.

 In its application, BlackRock questions the SEC’s regulatory distinctions between these two types of ETFs, asserting that the agency’s reasons for consistently denying spot crypto ETFs are based on incorrect regulatory frameworks.

The SEC has thus far withheld approval for any spot-crypto ETF applications while greenlighting various crypto futures ETFs. 

The regulatory body has justified this disparity by citing the purportedly superior regulation and consumer protections under the 1940 Act for crypto futures ETFs compared to the 1933 Act that covers spot-crypto ETFs.

However, BlackRock challenges this rationale, contending that the SEC’s preference for the 1940 Act lacks relevance in this context. 

The firm argues that the restrictions imposed by the 1940 Act pertain to ETFs and ETF sponsors rather than the underlying assets of the ETFs.

 BlackRock maintains that the distinction between the registration of ETH futures ETFs and spot ETH ETPs is, in essence, a difference without substance in the context of ETH-based ETP proposals.

This move by BlackRock not only challenges the SEC’s regulatory stance but also reinforces the asset manager’s commitment to cryptocurrencies. The ETF, if approved, would hold Ethereum’s ether (ETH), marking a further step in BlackRock’s embrace of the digital asset space.

The SEC’s previous approval of crypto futures ETFs through the Chicago Mercantile Exchange (CME) has led BlackRock to argue that the SEC has already acknowledged the effectiveness of CME surveillance in detecting spot-market fraud. 

As a result, BlackRock contends that the SEC lacks a justifiable reason to reject their spot-Ethereum ETF application based on the existing regulatory framework.

This development comes in the wake of BlackRock’s ongoing efforts to list a bitcoin ETF, signaling the company’s increasing involvement in the cryptocurrency market. 

CEO Larry Fink, once skeptical, has become a vocal supporter of cryptocurrencies. Coinbase is expected to act as the custodian for the ether held by BlackRock’s Ethereum ETF, subject to regulatory approval. 

The market has responded positively to this news, with Ethereum’s price experiencing a surge shortly after the announcement

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Saniya Raahath
Saniya Raahath

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