After the SEC found flaws in the original filing, BlackRock, the world’s largest asset manager, refiles for a spot Bitcoin ETF approval.

BlackRock headquarters in New York.
Source: Michael Nagle/Bloomberg

The US$9.09 trillion asset manager has submitted a revised application to the United States Securities and Exchange Commission (SEC) for a spot market Bitcoin exchange-traded fund (ETF). The amendments come in response to the SEC, which expressed concerns about alleged flaws in BlackRock’s initial application. If approved, BlackRock’s spot Bitcoin ETF would be the first of its kind, opening new avenues for investors to gain exposure to the world’s biggest cryptocurrency.

BlackRock’s strategic partnership with Coinbase

The amended filing addresses the regulator’s concerns by finalising a ‘surveillance-sharing agreement’ with Coinbase, which would allow for bilateral surveillance-sharing between Nasdaq and the cryptocurrency exchange. Coinbase is currently tied up in legal battle with the SEC over sale of supposed unregistered securities. Notably, the SEC has declined to provide appropriate regulations for the US crypto industry, choosing instead to hound various key companies and entities, including Ripple and most recently Binance and CEO Changpeng Zhao.

If approved, Coinbase will act as the ETF’s custodian and provide spot market data for pricing. By partnering with Coinbase, BlackRock aims to bolster the surveillance program of the proposed ETF. The inclusion of a bilateral surveillance-sharing agreement between Nasdaq and Coinbase, termed the Spot BTC SSA, aims to enhance market oversight and mitigate concerns surrounding potential fraud or manipulation in the spot market.

What is a spot Bitcoin ETF?

A spot Bitcoin ETF is an exchange-traded fund that aims to track the price performance of Bitcoin in the spot market.

An exchange-traded fund (ETF) is a type of investment fund that is traded on stock exchanges, similar to individual stocks. It allows investors to gain exposure to a specific asset or group of assets without directly owning them. ETFs are designed to track the performance of an underlying index, commodity, currency, or other assets.

Bitcoin is a decentralised digital currency that operates on a peer-to-peer network (blockchain) and can store value across time and space.

The spot market is where assets are bought and sold for immediate delivery and settlement. In this context, the spot market involves the purchase or sale of Bitcoin for immediate ownership. Spot prices are determined by the current supply and demand dynamics in the market.

Bringing these elements together, a spot Bitcoin ETF will offer investors a regulated and accessible way to invest in Bitcoin’s price movements without actually owning the underlying cryptocurrency. The ETF tracks the spot market price of Bitcoin, allowing investors to buy and sell shares of the ETF on a stock exchange. This provides investors with a convenient and regulated avenue to gain exposure to Bitcoin’s performance, similar to investing in traditional stocks or other ETFs.

Market response and industry implications

Source: coinmarketcap.com

News of BlackRock’s filing for a spot Bitcoin ETF sparked a surge in Bitcoin’s price, with a 20% increase since the filing was first reported. This positive market sentiment indicates growing confidence and interest in cryptocurrency, especially from more conservative investors. The bullish response persisted despite the SEC’s initial concerns about BlackRock’s application. In fact, asset management corporation Fidelity rushed to refile their own spot Bitcoin ETF application.

The challenge and the significance

BlackRock’s pursuit of a spot Bitcoin ETF approval reflect’s the SEC’s persistently raised concerns regarding potential fraud and manipulation in the spot market, leading to the rejection of all previous applications for such ETFs. In contrast, the SEC has approved four Bitcoin ETFs based on futures trading.

If BlackRock’s application is successful, the availability of a spot Bitcoin ETF would provide traditional investors with an efficient and familiar means of accessing the crypto market. By offering a convenient investment vehicle tied to the world’s most important cryptocurrency, the ETF would attract a broader range of investors seeking exposure to Bitcoin’s potential growth.

BlackRock’s strategic partnership with Coinbase, which would serve as the provider of a robust surveillance program, is an interesting detail not to be ignored (the significance was certainly not lost on the SEC). The outcome of BlackRock’s spot Bitcoin ETF application will have a significant impact on the future of cryptocurrency investments, paving way for centralised investment, but ultimately also investing in the industry’s strength and growth.

Update 19:oo (GMT+3), 5 July, 2023:?Crypto asset manager Valkyrie refiles for spot Bitcoin ETF with Coinbase as SSA partner.