Why is it said that ‘if someone can get approval for a BTC ETF, it would be BlackRock’?
Why is it said that if a BTC ETF gets approval, it would be BlackRock?
After understanding the regulatory process and listing rules, it is found that it is difficult for BTC ETF to be approved.
The original article “Despite BlackRock, Don’t Expect a Flood of Spot – Bitcoin ETFs Soon: Experts” is translated by Odaily Star Daily jk.
Will we witness a wave of spot Bitcoin Exchange Traded Funds (ETFs)? If you have been in the cryptocurrency industry for a while, you would know that ETFs have always been seen as the key to establishing a wide market for digital assets. Recently, even a major institution including BlackRock has submitted a proposal to create such a tool, sparking hopes. If leading institutions like BlackRock enter the Bitcoin ETF market, the appearance of the first cryptocurrency ETF in the United States should not be far away.
However, according to some experts contacted by CoinDesk, we may still need to wait for a while.
Just as BITX was approved, some institutions submitted a series of applications to the SEC regarding spot Bitcoin ETFs, stating that they would reach a monitoring sharing agreement with Coinbase, including an application from BlackRock. Bitcoin (BTC) briefly rose above $31,000 after the surge in ETF applications, solely due to the entry of BlackRock, the world’s largest asset management company with over $10 trillion in assets, reflecting the market sentiment of “How could the SEC refuse this financial giant?” and “Without a doubt, BlackRock only submitted the application because they know it will eventually be approved.”
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Matt Hougan, Chief Investment Officer of Bitwise Asset Management, told CoinDesk TV, “When BlackRock enters the market, you have to ‘listen’.” Like BlackRock, Bitwise has also resubmitted an application for a Bitcoin spot ETF. And brokerage firm Bernstein also mentioned that the SEC’s position on spot Bitcoin (BTC) ETF is difficult to maintain, and the probability of approval is quite high.
However, Octavio Marenzi, CEO and founder of Opimas LLC, and others believe that this application is destined not to be approved. “They have identified a custodian that the SEC itself has deemed to be operating illegally… I don’t understand how BlackRock can make this a reality,” Marenzi said.
It has been ten years since the cryptocurrency industry first sought to launch a spot Bitcoin ETF, and someone familiar with the process believes that there will be no approvals in the short term.
Volatility Shares’ 2x Bitcoin Strategy ETF (BITX) became the first leveraged cryptocurrency ETF available in the United States on June 27, and Stuart Barton, Chief Investment Officer of the SEC, was responsible for carefully submitting the application.
Barton said, “The delay is due to the unregulated nature of cryptocurrency exchanges. It takes a long time for an exchange to become a regulated exchange. This is a process that takes years. This is a step before the approval of the ETF. Currently, there is no regulated exchange for Bitcoin trading.”
CoinDesk also interviewed two other industry experts – James Koutoulas, a traditional hedge fund manager fighting against the SEC’s subpoena (involving a political memecoin targeting Joe Biden and Jai Waterman), and Jai Waterman, CEO of the cryptocurrency trading platform Blockstation.
Both expressed doubts about the immediate approval of a Bitcoin ETF in the United States. Based on Koutoulas’ experience in ongoing legal disputes with the SEC, he stated that although optimism in the crypto community is reasonable, he is uncertain whether final approval will be obtained.
Koutoulas said, “Approval for an ETF is not a sure thing.” “You just need to look at these conflicts (such as the lawsuit against Coinbase).” Waterman stated that the SEC is in a dilemma and faces political pressure, but this will “take a long time.”
“The ETF will not be approved until the lawsuit against Coinbase is resolved or abandoned,” said Waterman. “They may turn to other institutions instead of Coinbase, but that is also difficult because regulatory agencies want to find an institution with a good reputation and no ongoing litigation.”
However, Larry Fink, CEO of BlackRock, seems to be confident about this. He not only said that fervent believers in asset classes rely heavily on it for “illegal activities,” but also that Bitcoin could “change the financial system.” However, his recent comments suggest that even he believes that the approval of an ETF will take time.
Fink said earlier this month, “We hope that, as in the past, we can work with regulatory agencies and eventually obtain approval. I don’t know when that day will be, but we will see how the situation develops.”
According to experts, in addition to the approval of leveraged products, BlackRock’s application, and the subsequent market optimism, the XRP ruling has also put collective pressure on the SEC. Last week, a U.S. court partially ruled in favor of Ripple, stating that Ripple’s XRP token sales on exchanges and through algorithms do not constitute investment contracts. “The XRP ruling may support Coinbase’s case,” said Waterman. “This may be another pressure point in addition to these ETF applications. However, I believe the SEC will appeal the ruling on Ripple.”
Koutoulas stated that the XRP ruling has dealt a very serious blow to the SEC, as it confirms everything the crypto legal community has been advocating against the SEC’s excessive intervention. “Within hours of suffering significant losses on XRP, the SEC hastily harassed me with a subpoena, admitting ‘we will decide whether our meme coin is a security issue at another time,'” Koutoulas quoted the SEC’s subpoena.
“Clearly, this subpoena is not about a legitimate investigation, but about weaponizing the federal government and using it against cryptocurrencies and political opponents.”
Lawyers for Grayscale, a cryptocurrency asset management company, criticized regulatory agencies for approving Barton’s leveraged Bitcoin ETF after rejecting its own spot Bitcoin ETF application, putting more pressure on the SEC. They wrote to the United States Court of Appeals for the District of Columbia Circuit, claiming that the leveraged ETF approved by the SEC is “even more dangerous than Grayscale’s own spot Bitcoin ETF.” Grayscale has filed a lawsuit against the SEC for rejecting its own spot Bitcoin ETF application. (Note: Grayscale is a subsidiary of DCG and the parent company of CoinDesk.)
Barton stated that the process of approving leveraged ETFs and spot Bitcoin ETFs is different. “The difference between our leveraged ETF and spot Bitcoin ETF is that our ETF tracks Bitcoin futures traded on regulated exchanges, such as the Chicago Mercantile Exchange (CME), while the proposed spot Bitcoin ETF plans to reference Bitcoin cash that is not traded on any regulated exchange,” explained Barton.
Barton stated that the methodology for approving spot Bitcoin ETFs is very difficult because there is a listing rule – 19 b-4. This rule requires self-regulatory entities to seek SEC approval before making any changes to the trading rules. In this case, the BZX Exchange of Nasdaq and the Chicago Options Exchange are seeking to assume compliance responsibilities because the selected monitoring partner, Coinbase, is an unregulated exchange that does not meet SEC requirements. As part of this rule change, Nasdaq and Cboe BZX plan to fulfill some of Coinbase’s compliance obligations through a monitoring sharing agreement. Coinbase is currently an unregulated exchange and does not meet SEC requirements.
Barton said, “One challenge for an ETF application that requires a 19 b-4 is that the exchange needs the SEC’s specific approval decision to list it, which puts the SEC in a very powerful position.”
“The exchange not only needs to prove that the ETF complies with a set of ETF rules, but also needs to answer a broader range of questions from the SEC, because they are actually asking them ‘please allow us to change the exchange rules so that this new product can be listed as a new ETF,’ and very few 19 b-4 applications have been submitted, and this is a very lengthy process.”
Cboe’s five ETF applications – Wise Origin, WisdomTree, VanEck, Invesco Galaxy, and ARK 21 Shares, as well as BlackRock’s iShares Bitcoin Trust, have all submitted 19 b-4 applications. “One weakness of an application that requires a 19 b-4 is that you need the SEC’s specific approval to list it, which puts the SEC in a very strong position,” Barton said. “They don’t have to argue with you about whether this is a good investment. They can dig deep because you are actually asking them ‘please allow us to change the exchange rules so that this new underlying product can be listed as a new ETF,’ and very few 19 b-4 applications have been submitted, and this is a very lengthy process.”
Typically, when facing regulatory agencies, you would try to choose the simplest path, but this is a very difficult market to navigate. When asked why BlackRock applied despite the difficulties, Barton stated that BlackRock wanted to be the first in case the pressure was conveyed to the SEC.
“If anyone can get approval, it’s BlackRock,” Koutoulas said. “This is because BlackRock has already obtained approval for about 500 ETF applications, with only one permanently rejected, and the US government has conducted a lot of business with BlackRock.”