BlackRock Showdown on Bitcoin ETF Holds Crypto Spring Promise

BlackRock, SEC Showdown on Bitcoin ETF Holds Promise for Crypto Spring

Updated: 01 July 2023

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“Winter’s come, can spring be far behind?” asks an old Chinese proverb, and it comes to mind when thinking of BlackRock, the SEC and that Bitcoin ETF filing.

For the crypto industry, the prospect that spring may finally be breaking after a long winter is being bolstered by none other than the world’s biggest money manager, BlackRock, Inc., which is trying to convince the Securities and Exchange Commission (SEC) to allow it to launch a spot Bitcoin ETF.

With about $9 trillion in assets under management, it filed an application two weeks ago for the first publicly traded spot Bitcoin ETF in the US, firing a rally in Bitcoin (up 20% since June 14) and tokens from Bitcoin Cash (+189%), to Ether (+12.%), and Litecoin (+33%).

Hopes are high because of Blackrock’s heft and its extraordinary record at getting SEC filings approved, which Bloomberg Intelligence puts at 575 wins to just one rejection.

The stakes for the crypto industry are off the chart with the prospect of approval of a Bitcoin ETF backed by a pillar of the investment establishment being a landmark breakthrough for the nascent asset class that would ripple through the crypto ecosystem, likely raising all boats.

“Crypto and bitcoin have faced an onslaught of bad news from the regulatory front, and also just all of the bankruptcies and alleged fraud from last year,” Steven Ehrlich, director of research, digital assets, at Forbes, told Nasdaq’s Trade Talk television.

“And now, all of a sudden, the cavalry is kind of coming to save the day here in the form of the world’s largest asset manager.”

Despite BlackRock being the heavyweight champion of SEC filings, the Bitcoin ETF bout is different from its previous encounters with the regulator, when it was proposing investment vehicles comprised of regulated securities.

So, central to its success this time will be whether it can convince the SEC that it’s come up with an arrangement to prevent bad actors from manipulating the underlying market. That’s going to be tough, though BlackRock’s filing incorporates a surveillance-sharing arrangement that the SEC has made clear is a requirement.

SEC Rejected Long List of Spot Bitcoin ETFs

More will likely be required to convince the SEC, which has batted away a long list of previous applicants for spot Bitcoin ETFs.

The SEC says filings for spot Bitcoin ETFs by BlackRock and others are inadequate and aren’t clear and comprehensive, the Wall Street Journal reported today, citing people familiar with the matter. Bitcoin fell almost 4.3% on the news to $29,755 before regaining some of the losses. It traded at 30,511 at 11am EST.

One possible breakthrough maybe if BlackRock were to partner with the EDX Markets exchange launched last week, Nate Geraci of financial adviser ETF Store told the Financial Times.

Backed by fund management giant Fidelity Investments, brokers Charles Schwab, and Citadel Securities, only accredited members are allowed to trade on it. That may go further toward assuaging the SEC’s concerns but still doesn’t rule out manipulation via trading of the cryptocurrency on other unregulated markets.

While we think spot bitcoin ETF has 50% chance of getting approved this year we also think there's 50% chance of denial. @JSeyff out with note today with our bear case. Main issue: Coinbase (if this is the exch BlackRock using) is not that big nor is it regulated. pic.twitter.com/jZuTNXYPpS

— Eric Balchunas (@EricBalchunas) June 26, 2023

Still, the prospect that BlackRock may improve its record against the SEC to 576 wins to 1 defeat is a tantalizing prospect for the beaten-down crypto sector. Should BlackRock succeed with its Bitcoin ETF, institutions will have a safer place to trade, bringing greater legitimacy to the asset and opening the door to an avalanche of similar vehicles.

Whether or not BlackRock is triumphant this time around, the world’s biggest funds won’t stop knocking at the SEC’s door. Fidelity, another fund management giant with $4.2 trillion in assets under management, again filed a renewed attempt for a spot Bitcoin ETF yesterday, after an earlier attempt was rejected.

Other big names in the queue at the SEC include Cathie Wood’s Ark Invest, which amended its filing on Wednesday to include a surveillance mechanism, Invesco, VanEck, and WisdomTree.

The rush for approval is driven by the need for first mover advantage, Ehrlich told Nasdaq, noting that the first Bitcoin futures ETF launched in late 2021 by ProShares brought in more than $1 billion, compared with fractions of that by many subsequent offerings.

The bottom line is that the crypto sector is inching toward the mainstream for institutional investors, with a breakthrough spot Bitcoin ETF such as BlackRock’s holding out the prospect of a safer playing field for institutions followed by more positive change for the broader ecosystem.

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