SEC Has No Justification for Different Treatments of Crypto Futures & Spot ETFs, Says BlackRock


BlackRock has recently submitted an application to the US Securities and Exchange Commission (SEC) for an exchange-traded fund (ETF) called the “iShares Ethereum Trust”. The firm argued that the SEC should not treat spot-crypto and crypto-futures ETF applications differently, as the agency bases its reasons for denying spot crypto ETFs on incorrect regulatory distinctions between futures and spot ETFs.

In its application, BlackRock pointed out that the SEC has approved ETFs that offer exposure to ETH futures, which are priced based on the underlying spot ETH market. This means that the SEC must also approve ETFs that offer exposure to spot ETH.

The SEC has yet to greenlight a single spot-crypto ETF application, but has approved a host of crypto futures ETFs. The agency has indicated that this is due to crypto futures ETFs having supposedly superior regulation/consumer protections under the 1940 Act as opposed to the 1933 Act that covers spot-crypto ETFs. Additionally, the SEC also appears to favor the regulation and surveillance-sharing agreements over the Chicago Mercantile Exchange’s (CME’s) digital asset futures market.

BlackRock argued, 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. Furthermore, the firm noted that the SEC has “clearly determined that CME surveillance can detect spot-market fraud that would affect spot ETPs”, leaving the agency with no justifiable reason to reject the application under its current line of thinking.

It is generally thought among crypto and ETF analysts that the first SEC approval of a spot crypto ETF — in the form of a Bitcoin related one — is only around the corner. Bloomberg ETF analysts James Seyffart and Eric Balchunas predict a 90% chance of an approval sometime before Jan. 10 next year.

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