Is BlackRock’s clout enough to get its bitcoin ETF past the SEC?

Asset management BlackRock has a strong record in getting its products approved. 

Issuers seeking to launch a spot bitcoin ETF in the US have a terrible one. 

Such a fund has never been permitted, as the SEC has cited fraud and manipulation in the underlying spot market among its concerns. 

David Hirsch, chief of the SEC enforcement division’s crypto assets and cyber unit, said at a crypto conference Wednesday “there has not been an adequate system of surveillance” in the spot bitcoin market comparable to trading on a registered exchange.  

Still, BlackRock proposed the launch of an iShares Bitcoin Trust Thursday, an ETF that would tap Coinbase as its bitcoin custodian. 

The firm’s decision to seek the launch of a spot bitcoin ETF could signal that BlackRock saw a window for approval, some industry watchers said, while others believe it could simply reflect wishful thinking.

A BlackRock spokesperson declined to comment “due to regulatory filing restrictions.”

Bloomberg Intelligence analysts James Seyffart and Eric Balchunas said in a research note that BlackRock’s record for ETF application approvals stands at roughly 575-1. The one denial was for a nontransparent ETF in 2014 — a controversial structure at the time that, unlike traditional ETFs, don’t disclose their holdings daily.

“We’ve been pessimistic about the potential for a spot bitcoin ETF launch with Gary Gensler at the SEC’s helm, but BlackRock likely didn’t make the decision lightly and is used to working with regulators,” Seyffart and Balchunas wrote.

The next step after the registration statement is a 19b-4 filing, which would start the approval-seeking process. That filing, which begins a 240-day clock for the SEC to approve the product (or not) could come in the next few weeks, the Bloomberg Intelligence analysts said. 

Big name’s involvement a ‘game-changer’

The filing comes amid the SEC’s apparent crackdown on the crypto industry.  

Last week, the agency took legal action by initiating lawsuits against Binance and Coinbase, bringing various charges that included alleged unregistered securities violations.

But Nate Geraci, president of the ETF Store, called the filing a potential “game-changer,” noting there isn’t another asset manager in the world as well-connected to government officials and regulators as BlackRock. 

“The fact that BlackRock is filing now speaks volumes,” Geraci told Blockworks. “BlackRock typically isn’t in the business of making unforced errors, and betting on a spot bitcoin ETF if they weren’t confident in approval seems like an unnecessary gamble.”

Proponents of spot bitcoin ETFs have said the SEC allowing crypto investments in a regulated way would protect investors who may try to invest in crypto outside the fund wrapper — an arena daunting to many, particularly after the collapse of crypto exchange FTX.  

According to a statement from Matt Zhang, the founder and managing partner of crypto investment firm Hivemind, the approval of BlackRock’s proposed spot bitcoin ETF would provide institutional investors with a proper way to get bitcoin exposure through a household name.

“There is no better combination than BlackRock and Coinbase,” he argued. “They will give family office investors confidence to use ETFs in crypto.”

Read more: Interest in crypto plummets among family offices, survey says

An April 2022 survey of 500 financial advisors by Nasdaq found that 72% would be more likely to invest client assets in crypto if a spot bitcoin ETF were offered in the US. 

More recently, a survey in January by Bitwise and VettaFi found that 32% of financial professionals cited “lack of easily accessible investment vehicles like ETFs and mutual funds” as a barrier to crypto allocation.

Ric Edelman, founder of the Digital Assets Council of Financial Professionals (DACFP), compared the SEC’s spot bitcoin ETF denials to Prohibition, which he said chased people into speakeasies.  

During his conversation with the SEC’s Hirsch at the DACFP Vision conference in Austin on Wednesday, he said that financial advisers and other investors would welcome the opportunity to access bitcoin exposure through a prominent financial brand, citing Merrill Lynch as an example.

Hirsch — noting he was sharing personal views that weren’t necessarily those of the SEC — acknowledged there would likely be an upswing in adoption if such a large financial player got involved in the space.

“But also you’re going to have some people…who were never going to go into a speakeasy, but as long as there’s this brightly-lit pub, say maybe I’ll go in there,” the SEC leader said. “To the extent that bitcoin is subject to manipulation, you have some additional group of investors who are open to potentially more harm than they otherwise might have experienced.” 

Maybe no big deal?

Grayscale Investments launched a suit against the SEC last year for denying its planned conversion of its Bitcoin Trust (GBTC) to an ETF. That case is ongoing, and a ruling is expected in the coming months.

Though some said oral arguments in March suggested Grayscale could win the case, certain industry watchers noted a favorable ruling for the firm wouldn’t necessarily open a clear path for spot bitcoin ETF approvals. 

Dave Nadig, financial futurist at VettaFi, said he isn’t reading too much into the BlackRock filing and its timing.

“There’s really nothing new here, so at best this can be seen as jockeying for position in line on the belief that perhaps Grayscale wins its lawsuit,” he said. “Historically, who the issuer is hasn’t mattered all that much on who gets [to be] first on products like this.”

While spot bitcoin ETF applications go back a decade — the first being a 2013 attempt by the Winklevoss twins — only one other is active. 

Ark Invest and 21Shares re-filed for their spot bitcoin ETF in April. 

Seyffart and Balchunas said BlackRock’s filing Thursday could spur others who had previously tried to launch a bitcoin ETF — such as Bitwise, VanEck and Fidelity — to also re-file. 

“I still think it’s extraordinarily unlikely that a spot bitcoin ETF is trading in the US in this calendar year,” Nadig said. “And probably even in 2024.”

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