- The filing for a Bitcoin ETF by Blackrock sparked a rally in crypt prices as investors go renewed interest in the industry.
- According to experts, it could take a while before a spot Bitcoin ETF is approved in the US.
- Blackrock could be the first wealth manager to have its ETF approved.
ETFs have long been considered key for building a broad-based market for digital assets. Per various news outlets, BlackRock recently submitted a proposal to set up a vehicle that raised contemplation in the industry. If a bellwether, well-connected institution like BlackRock was getting into Bitcoin ETFs, surely an approval, and the first U.S. crypto ETF, couldn’t fall far from the firm. Are we about to see a wave of spot bitcoin exchange-traded funds (ETF)?
However, according to a range of experts contacted by CoinDesk, we may have to wait a little while.
Around the same time as BITX’s approval, a series of applications for Spot-Bitcoin ETFs with the SEC stated they would enter into a surveillance-sharing agreement with Coinbase, including one from Blackrock.
Bitwise Asset Management Chief Investment Officer Matt Hougan told CoinDesk TV that You have to “listen” when BlackRock comes to the market. Just like BlackRock, Bitwise notably refiled for a Bitcoin spot ETF. On the other hand, brokerage firm Bernstein noted that the SEC’s stance on spot bitcoin (BTC) ETFs is difficult to hold, and the probability for approval is fairly high.
Nonetheless, other experts, such as Opimas LLC CEO and founder Octavio Marenzi stipulated that “the application is dead on arrival.” Marenzi stated:
“They’ve identified a custodian for the assets that the SEC itself has said is operating illegally…I don’t quite see how BlackRock makes this happen.”
It has been a while since the crypto space first sought to launch a spot bitcoin ETF, and one person who understands the process intimately doesn’t see any approvals any time soon. On June 27, Volatility Shares’ 2x Bitcoin Strategy ETF (BITX) became the first leveraged crypto ETF available in the U.S. Around that time, its application with the SEC was Chief Investment Officer Stuart Barton.
“The hold-up is because of the unregulated nature of the crypto exchanges,” said Barton. “It takes a long time for an exchange to become regulated. That is a multiyear process. That’s a step before we get to an ETF approval. Currently, there’s no exchange on which Bitcoin trades are regulated.”
Experts’ Remarks on Spot-Bitcoin ETFs
CoinDesk, however, spoke to two other industry experts. The hedge fund manager James Koutoulas is currently fighting the SEC’s motion to subpoena him over a political meme-coin targeting Joe Biden and Jai Waterman, CEO of blockchain-based trading platform Blockstation.
They both put out their mind on the idea of an immediate spot bitcoin ETF approval in the U.S. Koutoulas, based on the experience of his ongoing troubled legal situation with the SEC. They said that while the crypto community’s optimism is justified, he’s not sure it will be 100% founded in eventual approval.
“It’s not a foregone conclusion that an ETF will be approved,” Koutoulas said. “You just have to look at the conflicts (for example, a lawsuit against Coinbase) for that,” Waterman said. The SEC is in a difficult position with political pressure. However, it’s still “going to take a long time.
However, BlackRock’s CEO Larry Fink seems convinced otherwise. Earlier this month, Fink noted:
“We hope that, like in the past, we could be working with our regulators and get the filing approved one day, and I have no idea what that one day will be, but we’ll see how that all plays out.”
Additionally, to the approval of the leveraged product, BlackRock’s application, and the subsequent market optimism, the XRP ruling has put collective pressure on the SEC, according to experts. As per the court ruling last week in Ripple’s favor, selling Ripple’s XRP tokens on exchanges and through algorithms did not constitute investment contracts.
Waterman has given his remarks, saying:
“The XRP ruling could support Coinbase’s case. That could be another point of pressure on top of these ETF applications. However, I do think the SEC will appeal the Ripple decision.”
On the other hand, Koutoulas said the XRP ruling had dealt a very sharp blow to the SEC because it confirms everything the crypto law community has been arguing regarding the SEC’s overreach.
Leveraged Vs. Spot-Bitcoin ETF
The lawyers for waterman manager Grayscale added more pressure on the SEC when they criticized the regulators for approving Barton’s leveraged bitcoin-based ETF after rejecting Grayscale’s spot bitcoin ETF application.
They addressed a letter to the U.S. Court of Appeals for the District of Columbia Circuit alleging that the SEC approved a leveraged ETF “even riskier” than Grayscale’s spot bitcoin ETF. However, Barton said the process to approve a leveraged ETF and a spot-bitcoin ETF differ. He explained:
“The difference between our leveraged ETF and a spot-bitcoin ETF is that our ETF tracks bitcoin futures that trade on a regulated exchange, the Chicago Mercantile Exchange (CME), but the proposed bitcoin spot-ETF plans to reference bitcoin cash which is not traded on any regulated exchange.”
Barton further said that the methodology for approving spot-bitcoin ETFs puts the SEC in a very powerful position because of a listing rule- 19b- 4. The rule requires self-regulated entities to seek the SEC’s approval before changing trading rules.
“The challenge of an ETF application that needs a 19b-4 is that the exchange needs a specific approval ruling from the SEC to list, putting the SEC in a very powerful position,” said Barton.
Barton added that the exchanges don’t only have to argue that the ETF falls under a certain set of ETF rules but also have to answer a far broader set of questions from the SEC because they’re asking them, ‘Please can we change the rules of our exchange to list this new product as a new ETF’ and very few 19b-4s get filed and can be a very long process.’
Overwhelmingly, the experts interviewed by CoinDesk predicted that while it’ll take time, and perhaps longer than the crypto community thinks, BlackRock’s best suited to be placed first in the ETF race. “If anyone’s going to get approved, it’ll be BlackRock,” Koutoulas said. “(Because) of BlackRock’s track record of having about 500 ETF applications approved and only one permanently rejected, and that the U.S. government does so much business with BlackRock.
Such an organization can “stand the test of time, and they can work on this for years. They might have to tweak and adjust, but eventually, with the necessary financial resources, they’ll get it done,” Waterman said.
