BlackRock’s Bitcoin ETF Dilemma: Spot vs Futures & the Ongoing Battle with SEC

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The world’s largest asset manager, BlackRock, is reportedly on the verge of filing an application for a Bitcoin exchange-traded fund (ETF) according to CoinDesk. Coinbase (COIN) Custody will be used for the ETF, as well as Coinbase’s spot market data for pricing. However, it remains unclear whether the ETF will be based on the spot or futures market, as BlackRock did not comment on the matter.

As of Thursday morning, the price of Bitcoin hovered close to $25,000, down from nearly $26,000 on Wednesday, as per CoinMarketCap. It is worth noting that the US Securities and Exchange Commission (SEC) has never approved a spot Bitcoin ETF due to concerns of fraud and manipulation. This stance dates back to July 2016 when the SEC disapproved a proposal from Cameron and Tyler Winklevoss to list and trade shares of the Winklevoss Bitcoin Trust.

On the other hand, the agency did approve several Bitcoin futures ETFs, such as the ProShares Bitcoin Strategy ETF, which began trading in October 2021. This contrasting treatment of Bitcoin spot and futures ETFs raises some questions. Why are spot ETFs seen as more susceptible to fraud while futures ETFs are given the green light?

Grayscale, the world’s largest digital asset manager, is at the center of this conundrum as it attempts to convert one of its funds (GBTC) into a spot Bitcoin ETF. The SEC rejected this effort last year, prompting Grayscale to file a lawsuit over the decision. This legal battle is currently unfolding in a Washington DC court, with a final verdict expected later this year.

Grayscale argues that both spot and futures Bitcoin ETFs share the same risks, questioning the SEC’s reasoning in approving one product but not the other. The SEC, for its part, believes its disapproval was justified, explaining that spot Bitcoin ETFs and Bitcoin futures ETFs are different because the spot market is “fragmented and unregulated” compared to futures, which trade on the regulated Chicago Mercantile Exchange.

This ongoing battle showcases the complexities and challenges surrounding Bitcoin ETF regulations. As BlackRock prepares to file its application, the outcome of Grayscale’s lawsuit could serve as a critical turning point for the cryptocurrency industry at large. Will the SEC soften its stance on spot Bitcoin ETFs, or will the tug-of-war between the two sides continue? The crypto community is undoubtedly watching these developments with bated breath, as the future of Bitcoin ETFs hangs in the balance.

Source: Cryptonews

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