When news broke that BlackRock had filed with the US Securities and Exchange Commission (SEC) to create an exchange-traded fund (ETF) for Bitcoin, the cryptocurrency market took it as a big deal. The presence of financial institutions of this level opens up the crypto market to those investors in the United States who are afraid to come into contact with cryptocurrencies directly, writes RBC Crypto.
BlackRock alone has assets under management totaling about $9 trillion. According to the analytical company Chainalysis, North America is the largest cryptocurrency market, with an annual turnover of approximately $1.2 trillion. This amount exceeds 24% of the global annual cryptocurrency transaction volume. According to analysts at JP Morgan, the rise in the rate of Bitcoin and other cryptocurrencies at the end of October was largely triggered by institutional demand for crypto assets.
The excitement around BlackRock’s application to create a spot ETF has surpassed the level of interest in applications from other management companies, including Fidelity Investments. On October 16, against the backdrop of sudden news that BlackRock’s ETF had been approved by regulators, Bitcoin jumped sharply above $30,000, and when it turned out that the news was fake, prices quickly returned to previous levels.
Sentiment around crypto assets is noticeably shifting towards institutional players. Last week, Google Trends data showed that the number of searches for the keyword spot bitcoin etf in Google’s international search reached its peak. The almost 100% success rate of approval of dozens of other ETFs from BlackRock adds optimism to cryptocurrency supporters: analysts openly call the approval and launch of the first spot Bitcoin ETFs a catalyst for the start of a new bull cycle in the crypto market. According to CryptoQuant experts, if issuing companies invest only 1% of their assets in cryptocurrency ETFs, the price of Bitcoin could increase to $50-70 thousand.
How new ETFs are launched in the US
Approval of such ETFs is a complex process involving a number of bureaucratic intricacies. Despite the fact that thousands of ETFs have already been approved by regulators in the United States, those that are tied to the direct delivery of cryptocurrency are faced with numerous refusals and transfers. IN column for Forbes, Sean Stein Smith, a professor at the City University of New York and a member of the Wall Street Blockchain Alliance advisory group, explains the procedure for registering a spot Bitcoin ETF using the example of BlackRock.
First, the potential ETF manager, called the sponsor, files a plan to create the ETF with the SEC. The process of launching a Bitcoin ETF has stalled at this stage, as the SEC has consistently rejected applications from BlackRock and other applicant companies. In their case, the sponsor and the authorized participant (usually a large institutional investor) are likely to be the same person. Assuming the application is approved, the authorized participant will begin to purchase the underlying asset (i.e. Bitcoin), place it in a trust, and then use those assets to form ETF units.
What’s the problem with Bitcoin ETFs?
The first attempts to launch a spot Bitcoin ETF were made about 10 years ago by the owners of the Gemini crypto exchange, the Winklevoss twin brothers. Any ETF is subject to approval by the SEC, and the top US exchange regulator has already approved thousands of such products since their inception, so frustration over the lack of such an ETF for Bitcoin is growing. While other ETFs with “rather exotic underlying assets and business models” have been approved, the SEC under Gary Gensler has steadfastly refused to approve a Bitcoin spot ETF, despite growing pressure from the industry and lawmakers, Smith notes.
In official comments and statements, the SEC reiterates that because Bitcoin is a volatile asset, the crypto industry is rife with fraud and market manipulation opportunities for which safeguards have yet to be developed, such a market is not mature enough to serve as an underlying asset for an ETF product.
On the other hand, many cryptocurrency supporters believe that the absence of such an ETF is proof of the anti-cryptocurrency stance of some politicians in the United States and the same SEC, which this year filed several high-profile lawsuits against companies operating in this area.
However, applications from BlackRock and other companies have already been adjusted and resubmitted to the SEC several times. According to analysts Bloomberg Intelligence, this signals a “constructive conversation” with the regulator, which typically only happens when an ETF is on track for approval. According to them, the likelihood that the SEC will approve the ETF in early 2024 is estimated at 90%.
According to JPMorgan experts, failure to approve a Bitcoin ETF is “unlikely, but still possible.” But if the SEC refuses, it could face lawsuits from issuing companies.
Source: Cryptocurrency
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