BlackRock’s Bitcoin ETF Proposal: A History of Approvals and One Rejection in ETF Applications

By 0xK2 06/16/23 1:23 PM

BlackRock, the world’s largest asset manager, has submitted an application to the Securities and Exchange Commission (SEC) for a Bitcoin spot ETF. If approved, this ETF would mark a significant milestone in the cryptocurrency industry, becoming the first of its kind to receive regulatory blessing. However, a closer examination of the historical relationship between BlackRock and the SEC reveals an intriguing dynamic surrounding ETF approvals and rejections.

Background

BlackRock has a notable track record when it comes to ETFs, with a vast array of successful offerings. The SEC has been generally receptive to the asset manager’s applications, granting approval for numerous ETFs over the years. However, there was one exception in 2014 when the SEC rejected BlackRock’s proposed ETF due to concerns about its nontransparent nature and the lack of alignment with the net asset value.

Nontransparent Nature and Trading Alignment

The rejected ETF application in 2014 had a distinctive characteristic that distinguished it from the majority of ETFs. It aimed to operate as a nontransparent fund, essentially concealing its holdings from investors, similar to a blind trust.

Furthermore, the proposed ETF did not provide sufficient assurance that its trading activities would align with the net asset value. This departure from standard practices raised concerns and ultimately led to the SEC’s rejection.

Reporting Frequency

Another notable discrepancy between the rejected ETF application and the SEC’s stipulations related to reporting frequency. While the SEC requires daily reporting for ETFs, BlackRock’s 2014 proposal planned to provide reports on a quarterly basis. This deviation likely raised concerns about the lack of real-time transparency and the potential impact on investors’ ability to make informed decisions.

Coinbase’s Role as Custodian

BlackRock’s latest Bitcoin ETF application introduces an additional layer of complexity due to the selection of Coinbase as the chief custodian of the fund’s Bitcoin holdings. This decision comes at a time when the SEC has filed a lawsuit against Coinbase, leading to questions about potential complications and regulatory implications. It remains to be seen how this choice will impact the SEC’s evaluation of BlackRock’s application.

Conclusion

BlackRock’s filing for a Bitcoin spot ETF represents a significant development in the cryptocurrency industry. Given the company’s reputation and the SEC’s generally positive stance towards its ETF applications, there is considerable anticipation surrounding the outcome of this filing.

However, the historical context sheds light on the SEC’s previous rejection of a nontransparent ETF from BlackRock in 2014, highlighting the importance of adherence to regulatory requirements, including transparency, trading alignment, and reporting frequency.

In a tweet on June 16, U.S. House Financial Services Committee Chair Patrick McHenry expressed his close scrutiny of the Securities and Exchange Commission’s (SEC) response to BlackRock’s application for a Bitcoin spot ETF. McHenry emphasized the importance of avoiding favoritism and ensuring consistency in the SEC’s decision-making process, noting that the regulator should not pick winners and losers based on arbitrary factors. McHenry’s statement implies that if the SEC approves BlackRock’s application, it would necessitate an explanation for the rejection of previous spot Bitcoin ETF applications from other cryptocurrency firms.

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