It’s official: the SEC has accepted and acknowledged the application submitted by BlackRock to issue a spot Bitcoin ETF on the US market.
However, this acknowledgement only means that the SEC has deemed the application legitimate and complete, after sending it back at first due to some shortcomings.
Thus, it does not mean at all that the application has been granted, or that the ETF has been approved. It just means that the SEC has taken over the application and will evaluate it.
The lengthy official document states that the commission is now soliciting comments on BlackRock’s application so that it can then have all the information it needs to make a decision.
It is worth noting that the ETF will be listed on the Nasdaq, and indeed it is the Nasdaq that is requesting to be able to list the iShares Bitcoin Trust by amending Nasdaq Rule 5711(d) entitled “Commodity-Based Trust Shares.”
The iShares Bitcoin Trust will be managed by iShares Delaware Trust Sponsor LLC, an indirect subsidiary of BlackRock. The custodian of the BTC will be Coinbase Custody Trust Company.
SEC: the process of approving or rejecting BlackRock’s Bitcoin ETF
The SEC now has several months before it is forced to have to issue a verdict.
In past similar cases it has always taken as much time as possible, postponing the decision whenever it could. However, it is also worth mentioning that so far it has rejected all applications for a spot Bitcoin ETF, i.e., collateralized directly in BTC.
However, this time it may be different.
In fact, BlackRock has an approval rate for its ETF applications of almost 100%, so many are betting that it will succeed this time as well.
Even so, the timeline could still be very stretched, as in the past, because the SEC may once again want to take as much time as it needs to analyze, examine and reflect.
However, it remains possible that the eventual approval, by no means a foregone conclusion, will happen in the very year of Bitcoin’s fourth halving, which is expected to take place in April next year.
Moreover, that of BlackRock is not the only similar request.
The consequences of the SEC decision: regarding Bitcoin ETF by BlackRock
Given that the mere news of the submission of a spot Bitcoin ETF by a giant such as BlackRock has sent Bitcoin’s price soaring, we might expect a decline in the price in the event of a rejection.
However, since there have already been many such rejections for as long as Bitcoin has been in the financial markets, the impact on the price of BTC may not be particularly important.
Then again, the above news also did not have a particularly major impact.
The matter could be very different in the event of acceptance.
The key point lies in the collateral of that ETF, namely BTC itself.
All existing ETFs on Bitcoin in the US markets are based on futures contracts. That is, they do not have BTC as their underlying, but futures contracts on the price of BTC.
In contrast, the one from BlackRock would have precisely BTC as collateral, requiring the manager to buy and hold BTC to hedge all the shares issued.
Hence, the more shares of the iShares Bitcoin Trust are sold, the more BTC will have to be purchased in the crypto markets to be locked up as collateral for the ETF.
This means that if it is approved and becomes very successful, it will actually drain Bitcoin from the spot markets, reducing its supply.
If it is approved and the markets think it is likely to be hugely successful, large investors may start buying BTC in the hope that the price will go up.
The key players in this ETF
What gives this request a better chance of being accepted than previous ones are the key players in this initiative.
First and foremost, obviously BlackRock, which is the world’s largest asset manager, as well as a company that has already successfully issued several hundred ETFs with an SEC approval rate close to 100%.
However, it should not be forgotten that Nasdaq, i.e., one of the major stock exchanges in the U.S., and the leading one as far as technology stocks are concerned, is also involved.
The fact that the ETF will be traded on such a solid and safe exchange could convince the SEC to consider its market less manipulable, i.e., to ignore one of the concerns that have led it over the years to reject all similar proposals.
Finally, there is Coinbase as a custodian, i.e., a company that the SEC itself cleared two years ago for listing, and which to date is one of the leading institutional-level crypto custodians in the US.
BTC custody has also always been a big concern of the SEC, so bringing in a giant like Coinbase could help in that regard as well.
Among all the spot Bitcoin ETF proposals submitted to the SEC over the years, the one from BlackRock actually seems the most robust.
The other crypto ETF
While the SEC has not yet authorized any directly collateralized cryptocurrency ETFs in the US, in other parts of the world there are already active and tradable ones.
This is especially the case in Canada, as three ETFs collateralized directly in BTC have already been listed on the Toronto Stock Exchange for some time.
Furthermore, Toronto is a city on the border with the United States, where many US citizens are present. However, its exchange has decidedly low volumes compared to the Nasdaq, or the New York Stock Exchange.
In the European Union, the first real BTC collateralized ETF is expected to be launched this year, since the similar funds already in existence are not really ETFs.
In other words, it seems that the US is falling behind at this juncture as well, perhaps because of excessive concerns due to an overly protective stance toward investors.
What’s more, it is now pretty clear to pretty much everyone of how risky investments in cryptocurrencies are, so in theory investors should be well prepared for the inevitable risks of investing in funds such as Bitcoin ETFs.
For all these reasons, there are many who cannot understand what the SEC’s real motivations are for not wanting to approve any such ETFs so far.
The political clash
One possible explanation could be that it also draws in the SEC’s other contrarian attitudes toward crypto markets.
As of this 2023 especially, the SEC seems to have started a real war against the crypto sector. It is possible that such a negative attitude has historical roots, and that this year it has only manifested itself in its full extent.
However, it is worth mentioning that the agency has been flunking spot Bitcoin ETFs since 2017, which is when the current chairman Gary Gensler, who is close to the Democratic Party, had not yet taken office. Then with the Republican administration of Donald Trump, another chairman of the agency, close to the Republican Party, was in office and still opposed to these ETFs.
At present though, Republicans seem much more likely to agree to let crypto markets flourish, while it is mostly Democrats who do not want to allow it.
Presidential elections will be held next year, and at this point it is also possible that after they are held, the SEC’s attitude will change, especially if the Republican candidate wins.