On November 9, Nasdaq filed Form 19b-4 with the U.S. Securities and Exchange Commission (SEC) on behalf of BlackRock, officially confirming BlackRock's plans for a spot Ethereum (ETH) ETF named "iShares Ethereum Trust." In its filing, BlackRock challenged the SEC's treatment of spot crypto ETFs, asserting that the agency's repeated rejection of such applications stemmed from inaccurate regulatory distinctions between futures and spot ETFs. BlackRock argued that since the SEC had approved ETFs providing exposure to ETH futures, which derive their pricing from the underlying spot ETH market, it should also approve Exchange-Traded Products (ETPs) offering exposure to spot ETH.
The SEC has not approved any spot cryptocurrency ETF applications but has given the green light to a series of cryptocurrency futures ETFs. The rationale provided by securities regulators is that crypto futures ETFs offer superior regulatory and consumer protections under the 1940 Act compared to the 1933 Act covering spot crypto ETFs. Furthermore, the SEC seems to favor a shared regulatory and oversight agreement for the Chicago Mercantile Exchange's (CME) digital asset futures market.
BlackRock contends that the SEC's preference for the 1940 Act is irrelevant in this context, emphasizing that it imposes restrictions "on ETFs and ETF sponsors" rather than on the ETF's underlying assets. The filing notes that none of these restrictions addresses the ETF's underlying asset, whether ETH futures or spot ETH, or the market where these assets are priced, whether the CME ETH futures market or the spot ETH market. BlackRock argues that the SEC's distinction between registering an ETH futures ETF under the 1940 Act and a spot ETH ETP under the 1933 Act is not significant in the context of the ETH-based ETP proposal.
According to BlackRock, the SEC, by approving cryptocurrency futures ETFs through the CME, implicitly believes that the CME's oversight can detect spot market fraud affecting spot ETPs. Therefore, based on the current regulatory landscape, BlackRock contends that the SEC lacks reasonable grounds to deny the application. Analysts in the cryptocurrency and ETF space generally believe that the SEC's approval of the first spot crypto ETF, particularly one related to Bitcoin, is imminent. Bloomberg ETF analysts James Seyffart and Eric Balchunas predict a 90% chance of approval by January 10 next year.
