Bankless: Wall Street wants Bitcoin

It’s been a wild June for the crypto community. A few weeks ago, U.S. regulators attempted a fatal blow to the crypto industry, and now Bitcoin has hit a new 2023 high, while altcoins are steadily recovering. This article will explore the attitude of institutions towards Bitcoin , which has largely driven the broad recovery of the crypto market.

For years, more than a dozen asset managers have sought regulatory approval from the U.S. Securities and Exchange Commission ( SEC ) to launch some form of spot bitcoin exchange-traded fund (ETF), but so far applicants have been met with only silence or rejection.

However, just last week, BlackRock, the world’s largest asset manager with over $9 trillion in AUM and a near 100% ETF approval record, joined the list. Hopes have been rekindled that the status quo for spot BTC ETFs may be about to change, with BlackRock ’s proposed ETF seen by many as having a legitimate chance of receiving SEC approval.

The market is now signaling that BlackRock's application increases the likelihood of other spot BTC ETFs being approved. The market premium of the Grayscale Bitcoin Trust ( GBTC ) relative to its net asset value (NAV) is a barometer of the likelihood of its spot BTC ETF being approved. Currently, this discount is at a 2023 low of 33.5%.

The SEC’s Problem

The first BTC futures ETF received regulatory approval from the SEC in October 2021, but the agency has been slow to approve a BTC spot ETF.

The SEC’s numerous rejection letters for Bitcoin ETF spot applications contain similar language, citing the listing exchanges’ failure to fulfill their obligations under the Exchange Act to prevent fraud and market manipulation as the reason for the rejection.

To demonstrate that the exchanges listing the proposed Bitcoin spot ETF are able to meet their obligations under the Exchange Act, the SEC requires “comprehensive supervisory sharing agreements of significant regulated markets related to the underlying or reference Bitcoin asset.”

The lack of a U.S.-regulated spot market for bitcoin has hampered a potential comprehensive surveillance-sharing agreement. Applicants have long criticized the framework, arguing that if regulators are comfortable with ETFs holding derivatives of an asset, then logically they should also be comfortable with ETFs holding that underlying asset.

In addition, the SEC frequently accepts oversight-sharing agreements with regulated futures exchanges in commodity and currency markets where unregulated spot trading is the norm (soybeans and the U.S. dollar).

So why are these rules applied differently to Bitcoin, whose commodity attributes are so strong that even the SEC doesn’t dare to put its reputation on the line to resist it? Perhaps the SEC’s decision was forced by the mastermind behind “Stranglehold 2.0”…

Regulation paves the way for Wall Street giants?

In June, when Gary Gensler attacked cryptocurrency exchanges and labeled tokens as securities, BlackRock chose to apply for a Bitcoin spot ETF. Do you also find it a bit suspicious?

Is BlackRock’s ETF application just part of the government’s deliberate attempt to prop up TradFi as the helm of the crypto space? Or has BlackRock just seen the “writing on the wall” and is looking for the right time to step in to fill the institutional trust vacuum caused by the SEC?

Regardless, Nic Carter first sounded the alarm about “Operation Choke Point 2.0” in February, and over the next four and a half months, we’ve witnessed a continued crackdown by regulators on crypto-related banks, exchanges, and staking service providers.

First, BlackRock. Then came EDX: a cryptocurrency exchange tailor-made for institutions, the brainchild of TradFi giants like Charles Schwab, Citadel Securities , and Fidelity, founded in September 2022 but opting to officially launch on June 20, 2023.

Like any “exchange” in traditional finance, EDX acts only as a marketplace, matching buyers with sellers and separating trading functions from brokerage and custody services. While different from the all-in-one model offered by CEXs such as Coinbase and Binance, EDX’s approach appears to be consistent with the SEC’s requirements for separation of core trading functions.

Additionally, EDX is limiting its initial markets to Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Bitcoin Cash (BCH). TradFi appears to be operating within the confines of the unwritten SEC rulebook, and EDX’s unique structure likely meets the agency’s definition of a “regulated” Bitcoin spot market.

Whether there’s a genuine conspiracy here or just a string of regulator-sanctioned manipulations, it’s clear that governments are spending a lot of energy punishing builders in the cryptocurrency space while paving the way for Wall Street’s TradFi speculators.

Bull market coming?

Rumors of BlackRock’s filing proved to be the only thing that marked the bottom of a crypto market that was then suffering from an endless regulatory onslaught, with global asset managers emerging as future sellers of Bitcoin investment products.

Traders are now betting that institutions piling into crypto will realign their narratives to sell BTC products to clients in the coming years, meaning users who hold crypto now could soon see big gains.

Since BlackRock’s announcement, markets have rallied across the board, boosting altcoins, but Bitcoin has been the primary beneficiary, hitting a 2023 high of $31,300 in the ensuing week-long bullish price action.

While it’s always unknown where asset prices are headed in the short term, especially in the volatile crypto market, the thoughtful decisions made by the U.S. financial giant to solidify its position in the industry prove that cryptocurrencies are here to stay.

TradFi’s giants are profiting by looking for opportunities, and now, major players are clearly investing corporate resources to establish a foothold in the industry, with BlackRock starting to recruit digital assets talent two weeks ago.

With prices still facing heavy resistance, the institutional-led rally may well be coming to an end (for now), but this move by BlackRock reaffirms our long-term confidence in crypto!