During the time that the BITX was being approved by the SEC, a number of financial institutions, including BlackRock, submitted applications to the SEC for spot bitcoin ETFs, indicating that they intended to enter into a surveillance-sharing agreement with Coinbase.
The participation of the asset manager with the most assets in the world, which totals more than $10 trillion, raised investors’ expectations, which in turn caused the price of Bitcoin to rise to over $31,000. Positive sentiment was helped along by the fact that Bitwise Asset Management and Bernstein both resubmitted their applications for a bitcoin spot ETF.
Octavio Marenzi, the Chief Executive Officer of Opimas LLC, is one of the individuals who is of the opinion that the application will not likely be accepted because of concerns regarding the legality of the chosen custodian. The market is still divided on the question of whether or not BlackRock’s application for an ETF will be successful.
It has been ten years since the cryptocurrency industry made its initial attempt to launch a spot bitcoin exchange-traded fund (ETF), but according to a person who is deeply involved in the process, no approvals are expected in the near future.
The application to the SEC was prepared and submitted by Stuart Barton, who is also the Chief Investment Officer of the 2x Bitcoin Strategy ETF (BITX) offered by Volatility Shares. However, according to Barton’s explanation, the reason for the delay is because cryptocurrency exchanges are currently unregulated, which means that the regulatory process will take a considerable amount of time.
It will continue to be challenging to get approval for a Bitcoin exchange-traded fund (ETF) until there is a regulated marketplace for trading bitcoins.
CoinDesk reached out to two leaders in the financial sector, hedge fund manager James Koutoulas and CEO of blockchain-based trading platform Blockstation Jai Waterman, to get their perspectives on the prospect of an immediate approval for a spot bitcoin exchange-traded fund (ETF) in the United States.
The two experts shared their doubts about the likelihood of such approval being granted in the not-too-distant future. Koutoulas, who is currently dealing with legal issues and fighting the SEC’s subpoena motion over a political meme coin targeting Joe Biden, stated that while he understands the optimism of the cryptocurrency community, he is not entirely convinced that it will ultimately result in a one hundred percent approval for a Bitcoin exchange-traded fund (ETF). Koutoulas is currently dealing with legal issues and is fighting the SEC’s subpoena motion over the coin.
According to Koutoulas, the approval of an ETF is not guaranteed, particularly in light of the conflicts and legal issues, such as Coinbase’s lawsuit.
Koutoulas cites the lawsuit as an example. This sentiment was echoed by Waterman, who stated that the SEC faces challenges as a result of political pressure and that it is likely that the approval process will take longer. He emphasized that the approval of ETFs is highly unlikely to occur before Coinbase’s lawsuit is either resolved or dropped. If Coinbase continues to be involved in the lawsuit, the application process will be more challenging because regulators would rather have the ETF application supported by an organization with a strong reputation and no pending legal disputes.
It would appear that Larry Fink, CEO of BlackRock, has come to a different conclusion regarding bitcoin. Initially, he was concerned about its use in illegal activities; however, he now believes that it has the potential to revolutionize the financial system. He was concerned about its use in illegal activities initially.
Fink admitted that the approval of a Bitcoin exchange-traded fund (ETF), despite his optimism, could still take a significant amount of time. In the long run, he wished to collaborate with the authorities in order to have the filing accepted, but he was unable to forecast when this would take place. As both the timeline and the situation continue to evolve, Fink keeps an open mind about what might happen next.
XRP ruling increases pressure on the SEC
Experts believe that the Securities and Exchange Commission was pressured into approving the leveraged product in addition to BlackRock’s application for a Bitcoin exchange-traded fund (ETF) and the resulting optimism in the market.
The recent XRP ruling also plays an important role in this, with a court in the United States deciding in part in favor of Ripple and stating that the sale of XRP tokens did not constitute investment contracts. This was a ruling that was partially in Ripple’s favor.
The chief executive officer of Blockstation, Jai Waterman, believes that the XRP ruling may lend support to Coinbase’s case and increase the pressure on the applications for ETFs. However, Waterman is of the opinion that the SEC will most likely file an appeal regarding the Ripple decision.
According to James Koutoulas, a manager of hedge funds, the SEC has been dealt a severe blow by the XRP ruling, as it validates the crypto law community’s claims that the SEC has overreached its authority. Koutoulas notes that this blow has dealt the SEC a severe blow. Koutoulas notes that not long after the Ripple loss, the SEC issued a subpoena against him in relation to a political meme-coin. This is something that he views as an attempt to use the federal government against cryptocurrency and political opponents, rather than a legitimate investigation.
The SEC’s actions in the cryptocurrency industry are coming under closer scrutiny as a result of the current situation.
Bitcoin leveraged versus spot ETFs
Grayscale’s attorneys have put additional pressure on the SEC by criticizing the regulators for approving Barton’s leveraged bitcoin-based ETF while rejecting Grayscale’s application for a spot bitcoin ETF. This action was taken in response to the SEC denying Grayscale’s application for a spot bitcoin ETF. In a letter addressed to the United States Court of Appeals for the District of Columbia Circuit, they made the argument that the approved leveraged ETF was “even riskier” than Grayscale’s spot bitcoin ETF.
Grayscale has responded to the SEC’s decision to reject its spot bitcoin ETF application by initiating legal action against the agency. It is extremely important to make note of the fact that Grayscale is a subsidiary of Digital Currency Group, the parent company of CoinDesk.
Barton provided clarification in response to the criticism, stating that the approval processes for leveraged ETFs and spot-bitcoin ETFs are significantly different from one another. He explained that their ETF tracks bitcoin futures that are traded on the Chicago Mercantile Exchange (CME), which is a regulated exchange. On the other hand, the proposed bitcoin spot-ETF will track bitcoin cash, which is not traded on a regulated exchange.
In 2021, the CME replaced Binance as the largest bitcoin futures platform in the world.
According to Barton, a listing rule referred to as 19b-4 provides the SEC with a significant amount of authority over the process of approving spot-bitcoin ETFs. According to this rule, self-regulatory organizations are required to obtain approval from the SEC before making any changes to their trading rules.
When it comes to NASDAQ and Cboe’s BZX Exchange, they are asking to take on compliance responsibilities because the surveillance partner they have chosen, Coinbase, is an unregulated exchange that does not fulfill the requirements set forth by the SEC.
As part of this rule modification, the NASDAQ and Cboe BZX intend to fulfill some of Coinbase’s compliance obligations by means of an agreement to share surveillance data with one another.
Due to the fact that it is an unregulated exchange, Coinbase does not currently comply with SEC requirements. This poses a problem for ETF applications that require 19b-4 approval. As a result, the SEC now possesses a significant amount of authority over the process of listing these ETFs.
When it comes to submitting an application for ETF approval, the exchanges are faced with a challenging task. Not only are they required to show that the ETF complies with certain ETF rules, but they must also provide responses to a wider variety of SEC inquiries.
In order to list the new product as an exchange-traded fund (ETF), they are, in essence, submitting a 19b-4 application to the SEC in order to request that the SEC approve changes to their exchange rules. However, considering how time-consuming the application process can be, only a small number of 19b-4 applications are ever submitted.
Each of the five ETF applications submitted by Cboe as well as the iShares Bitcoin Trust application submitted by BlackRock have each submitted a 19b-4 application.
The requirement of 19b-4 puts the SEC in a powerful position, giving them the ability to conduct a thorough investigation of the application. The discussion of the merits of the investment is sidelined in favor of obtaining approval for modifying the exchange listing rules in order to list the ETF.
This shifts the focus away from the investment itself. Barton from BlackRock explained that despite the difficulty of this route to market, BlackRock pursued it in order to be the first to receive approval if SEC pressure results in progress. BlackRock’s goal was to be the first to receive approval if SEC pressure results in progress.
If anyone, BlackRock will do it
Even though it may take longer than the cryptocurrency community anticipates, the vast majority of the industry experts that CoinDesk interviewed believe that BlackRock is best positioned to be the first ETF issuer. This is despite the fact that it may take longer than the cryptocurrency community anticipates.
James Koutoulas emphasized BlackRock’s competitive advantage by pointing out that the company has a proven track record, having had approximately 500 ETF applications approved with only one rejection, and that they have extensive business dealings with the United States government.
According to Jai Waterman, the strength and stability of BlackRock’s finances enable the company to withstand the test of time and, if necessary, work on the ETF approval process for years at a time. He is confident that, given their capabilities, they will eventually be successful, even if there are some course corrections that need to be made along the way.
Despite BlackRock’s advantageous position, Stuart Barton notes that smaller organizations may have an advantage in terms of agility and flexibility when navigating the ETF approval process. This is the case even though BlackRock is in a more advantageous position.