Uncovering the Difference Between Crypto Futures and Spot ETFs: BlackRock’s Argument Against SEC

BlackRock’s ETF Applications

BlackRock has asserted that the U.S. Securities and Exchange Commission (SEC) has no valid basis for treating applications for spot-crypto and crypto-futures exchange-traded funds (ETFs) differently.

On November 9, Nasdaq filed a 19b-4 application form to the SEC on behalf of BlackRock’s plan for an ETH-based ETF, called the “iShares Ethereum Trust”.

BlackRock’s application argued that the SEC is misguided in its repeated denial of spot crypto ETFs, as it is mistakenly distinguishing between futures and spot ETFs.

The SEC has yet to approve any spot-crypto ETF applications, although it has authorized a number of crypto futures ETFs.

Difference Between the 1940 and 1933 Acts

The securities regulator has indicated that crypto futures ETFs have supposedly superior regulation and consumer protections under the 1940 Act compared to the 1933 Act which covers spot-crypto ETFs.

Moreover, the SEC also appears to favor the regulation and surveillance-sharing agreements over the Chicago Mercantile Exchange’s (CME’s) digital asset futures market.

BlackRock claims, however, that the 1940 Act is irrelevant in this scenario, as it places “certain restrictions on ETFs and ETF sponsors” and not the underlying assets of the ETFs.

“As a result, the Sponsor believes that the distinction between registration of ETH futures ETFs under the 1940 Act and the registration of spot ETH ETPs under the 1933 Act is one without a difference in the context of ETH-based ETP proposals.”

SEC Approval of Crypto ETFs

The SEC has given its stamp of approval for crypto futures ETFs via the CME, which BlackRock believes has “clearly determined that CME surveillance can detect spot-market fraud that would affect spot ETPs.”

Therefore, the SEC has no grounds to reject the application according to the current line of thinking.

The crypto and ETF analysts are of the opinion that the first SEC approval of a spot crypto ETF — likely to be Bitcoin-related — is imminent.

Bloomberg ETF analysts James Seyffart and Eric Balchunas estimate a 90% chance of an approval before January 10th, 2021.