According to BlackRock, there is no justification for the U.S. SEC to handle applications for exchange-traded funds that are crypto-futures and spot-crypto differently. On November 9, BlackRock’s proposal for an Ethereum (ETH) ETF known as the “iShares Ethereum Trust” became formally official when Nasdaq filed the 19b-4 petition with the SEC on the company’s behalf. BlackRock questioned the SEC’s handling of spot cryptocurrency exchange-traded funds (ETFs) in its application, claiming that the agency incorrectly distinguishes between contracts and spot ETFs for purposes of regulation, which is why it keeps rejecting these applications.
Does The SEC Have Any Authentic Reason To Reject The BlackRock Application?
“The Sponsor considers that SEC must approve ETPs which provide access to spot ETH, considering that the Commission has authorized ETFs that provide coverage to ETH options, which ultimately are priced depending on the fundamental spot ETH market.” The SEC has authorized several crypto futures ETFs but has not yet accepted a single application for a spot crypto ETF.
According to the securities regulator, this is because crypto futures exchange-traded funds (ETFs) are covered by the 1940 Act, which reportedly offers more regulation and consumer safeguards than the 1933 Act, which covers spot-crypto ETFs. Furthermore, it seems that the SEC favors surveillance and regulation-sharing partnerships over the digital asset futures market offered by the CME.
However, according to BlackRock, the 1940 Act only imposes “certain restrictions on ETF and ETF sponsors,” not on the underlying assets of the ETFs, hence the SEC’s support for it is irrelevant in this context. Therefore, the Sponsor feels that, in the case of ETH-based ETP proposals, there is no distinction between the issuance of spot ETH ETPs under the 1933 Act and the certification of ETH derivatives ETFs under the 1940 Act.