BlackRock Challenges SEC Over Different Treatment of Crypto Futures and Spot ETFs

BlackRock has recently put forth a compelling argument against the U.S. Securities and Exchange Commission’s (SEC) distinct treatment of crypto futures and spot exchange-traded funds (ETFs). This challenge arises from BlackRock’s proposal for a spot-Ether (ETH) ETF, named the “iShares Ethereum Trust.”

Key Points of the Argument:

1. SEC’s Regulatory Distinctions Questioned: BlackRock’s submission questions the SEC’s rationale in continually denying applications for spot crypto ETFs, while approving those for crypto futures. The argument highlights the lack of substantial regulatory differences between the two under the existing laws – the 1940 Act for futures ETFs and the 1933 Act for spot ETFs.
2. BlackRock’s Spot ETF Application: The firm recently confirmed their plan for a spot-Ether ETF after Nasdaq submitted the 19b-4 application form to the SEC on BlackRock’s behalf. This move signifies a major step in BlackRock’s foray into the crypto ETF space.
3. SEC’s Preference for 1940 Act Over 1933 Act: The SEC has indicated a preference for the regulation and consumer protections offered under the 1940 Act, which governs futures ETFs, as opposed to the 1933 Act that covers spot crypto ETFs. BlackRock challenges this preference, arguing that it is irrelevant in the context of the assets underlying these ETFs.
4. CME’s Role in Surveillance: BlackRock further argues that since the SEC has approved crypto futures ETFs through the Chicago Mercantile Exchange (CME), it implies the CME’s capability to detect fraud in the spot market. This, according to BlackRock, leaves the SEC with no substantial reason to reject a spot ETH ETF application.
5. Predictions of Approval: The article cites Bloomberg ETF analysts James Seyffart and Eric Balchunas, who predict a high likelihood of the SEC approving a spot crypto ETF, potentially related to Bitcoin, in the near future.

BlackRock’s challenge brings to light the ongoing debate in the financial world about the regulatory treatment of different types of crypto-related investment products. This issue is particularly significant as the world of finance continues to grapple with integrating and regulating emerging digital assets like cryptocurrencies. The outcome of BlackRock’s application and its implications on the SEC’s regulatory approach could potentially pave the way for more widespread acceptance and integration of crypto-assets in mainstream investment portfolios.