Under heavy regulatory pressure, asset management giant BlackRock submits application for spot Bitcoin ETF

According to a public document, on the afternoon of June 15th, New York time, investment management giant BlackRock submitted an application for a spot Bitcoin ETF to the U.S. Securities and Exchange Commission ( SEC ).

The move comes as the crypto industry is embroiled in a regulatory battle with the U.S. Securities and Exchange Commission over alleged violations of securities laws. Earlier this month, the SEC sued leading exchanges Coinbase and Binance .

BlackRock, which manages $9.1 trillion in assets as of March 2023, outlined plans for its iShares Bitcoin Trust in a filing that will entrust Coinbase Custody as a bitcoin custodian and Bank of New York Mellon as a cash custodian. The planned product will use a bitcoin reference rate from CF Benchmarks , a subsidiary of Kraken that collects price data from exchanges to continuously track spot pricing.

BlackRock previously entered into a partnership with Coinbase in August last year, enabling clients to own and trade digital assets, starting with Bitcoin, using BlackRock’s investment management platform Aladdin . Through the deal, BlackRock’s clients gain access to Coinbase’s trading, custody, prime brokerage and reporting services.

Prior to its connection with Coinbase, BlackRock launched the iShares and Blockchain Technology ETF (IBLC) in April 2022. More than a year after its launch, IBLC has just $7 million in assets under management, although the fund is up 75% year to date.

Regulatory resistance

Registering a Bitcoin ETF in the United States has always been a difficult task, especially for funds that deal with spot market transactions. So far, the SEC has not approved any such spot ETF applications, including Grayscale , VanEck , and WisdomTree , due to concerns about potential fraud or manipulation in the spot market. 21Shares and Cathie Wood's Ark Investment have also been trying to register a spot Bitcoin ETF since 2021.

In contrast, the agency has approved four bitcoin futures ETFs. The largest of these is the ProShares Bitcoin Strategy ETF (BITO), which manages about $800 million in assets. Since its launch, the fund has lost more than 40% of its total value, according to FactSet. Bitcoin hit an all-time high shortly after BITO was launched, and has fallen more than 60% since then.

Grayscale has filed a lawsuit against the SEC over its rejection of its proposal to convert its Bitcoin Trust into a spot ETF, and a court decision on the case is expected later this year.

If ETFs begin trading, they typically take several months to launch after the initial application. Aisha Hunt, head of asset management law firm Kelley Hunt & Charles, was not optimistic about this, saying in a tweet that BlackRock's application may face strong resistance from the SEC and may eventually withdraw the application.

Impact on the industry

“An estimated 20% of Americans own Bitcoin at some point,” Sui Chung, CEO of CF Benchmarks, said in a statement. “BlackRock’s proposed ETF could provide a more familiar and accessible option for the other 80%.”

BlackRock CEO Larry Fink has also expressed optimism about crypto over the past year, saying at the New York Times Summit last November that tokenized securities are the "next generation of the market."

BlackRock's application for a spot Bitcoin ETF could mark a turning point for the industry as prominent players in traditional finance acknowledge Bitcoin's potential. If the SEC relaxes its policies, these products could flood the market, providing investors with a safer investment opportunity to participate in the Bitcoin market through a regulated and easy-to-use investment tool, which would open the door to a new wave of crypto adoption.