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BlackRock Vs SEC, Or BlackRock Plus SEC?
BlackRock's spot Bitcoin ETF application has taken the crypto world by surprise - and might just stand a chance where others have failed.
Investment giant BlackRock has filed an application for a spot Bitcoin ETF. If approved, this would arguably be the most significant positive development in the crypto space of this cycle, opening the door to potentially trillions of dollars of institutional capital.
SEC: A Track Record Of Denying Bitcoin ETFs
No other organization has managed to convince the SEC to approve a spot (rather than futures) BTC ETF; in the past, the SEC has dragged its heels for the full 240-day duration of the approval process, before denying each and every application. Not only does this seem a tough ask in itself, but the timing is odd. The news drops at a time when the SEC and financial institutions are waging an open war against crypto in the form of Operation Choke Point 2.0.
What's more, the organization BlackRock has chosen to partner with to custody the BTC held by the fund is none other than Coinbase. This makes perfect sense given Coinbase's strong track record of security and commitment to regulatory compliance, but it so happens that the SEC and Coinbase are at each others' throats in the courts. The SEC has charged Coinbase with operating an unregistered national securities exchange, broker, and clearing agency, and for failing to register the offer and sale of its crypto asset staking-as-a-service program. Coinbase has taken the SEC to court in order to compel the regulator to provide the clarity the crypto industry desperately needs to function properly, which it has proven reluctant to do in a timely manner.
In short, BlackRock appears to have waded into a street fight—firmly on the side of crypto and Coinbase, and at odds with the SEC, whom they need to approve their application.
BlackRock's Crypto History
BlackRock is nailing its colors to the mast, and they're orange. For clarity, that's a reference to the coin, not the Donald: Larry Fink, the Chairman and CEO of BlackRock, is a lifelong supporter of the Democrats—who, remember, can be pretty anti-crypto.
A few years back, BlackRock CEO Fink had an altogether more Democrat-style approach to bitcoin. In October 2017, Fink called bitcoin "An index of money laundering".
Fink's, and BlackRock's, views apparently changed over time, with more positive comments coming in 2020. Early in 2021, BlackRock started trading bitcoin futures. Later that year, the asset manager took an interest in bitcoin mining stocks.
Now BlackRock is looking to launch a spot BTC ETF, something no other US organization has managed, at a time when the SEC is battling multiple crypto companies. More specifically, they're seeking to use Coinbase for custody, which is one of the businesses the SEC is looking to take down.
Larry Fink from Blackrock in 2017:— Good (@atgoodm) June 17, 2023
"Bitcoin merely illustrates how much demand there is, worldwide, for money laundering. Nothing more."
Larry Fink from Blackrock 2020:
"I am fascinated by Bitcoin, and I am encouraged by the number of people who are focusing on it."
In summary, right when no one was talking about an ETF, right when the SEC is throwing everything it can at the wall to see what sticks, that's when the biggest asset manager in the world decides it's time to bring out the best possible product for bitcoin adoption.
So... What's Going On?
First up, this video from Pomp gives some great background on the landscape of bitcoin ETFs, and what BlackRock brings to the table. BlackRock is responsible for 33% of the US ETF market—Vanguard come in second place with 30%—and their record of getting ETFs approved by the SEC is 575-1. (That 1, by the way, was a new type of product the SEC needed more time to get its head around, and would be approved today.) There's a revolving door of employees between BlackRock and the SEC. They're a big Democrat donor and very well connected.
There are a lot of questions about the BlackRock bitcoin trust filing, so I sat down with Bloomberg's @EricBalchunas and @JSeyff to get answers.— Pomp 🌪 (@APompliano) June 16, 2023
This is a 30 minute masterclass in everything you need to know. pic.twitter.com/C5bF8YLzp5
It's notable that right now, there's very little competition for a BTC ETF: There is one other active application, plus GBTC's court case against the SEC to convert their Trust to an ETF. First-mover advantage for ETFs is considerable; day 1 inflows could be hundreds of millions of dollars.
Overall, there are several possibilities. Here are three potential narratives and outcomes:
- The SEC will deny the application, or more likely string it out for the entire 240 days of the process, and deny it at the last minute. BlackRock, big as they are, will fail.
- BlackRock will fight and win. They are, after all, one of the most powerful financial forces in the world. Additionally, the regulatory status of BTC is clear: It's a commodity. The SEC is fighting a war on multiple fronts. It can't afford to take on another battle it stands to lose. BlackRock knows this, and believes the SEC will concede. Or, perhaps, an understanding has already been reached that the SEC won't deny BlackRock's application.
- Then there are the Conspiracy Theories—and while the crypto space is never short of these, in this instance there is some very strange stuff indeed going on with the SEC. Take a look at BitBoy's recent video about the no-name exchange with no product, set up by as shady a set of founders as you're ever likely to see and with Chinese money, which has somehow gained regulatory approval from the SEC and access to the US markets. (It looks very much like they're a plant designed to parrot the SEC's line to Congress.) One narrative is that BlackRock and the SEC are working together to crush altcoins through regulatory enforcement, pushing down prices, while BlackRock buys the dip and sweeps in to dominate the entire crypto market with a BTC ETF.
Opinion among experts is divided whether BlackRock will be successful, but few are writing them off. BlackRock are just too big and powerful to be ignored—and so, for that matter, is Bitcoin.
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