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It’s been a rollercoaster June for the crypto community. A few weeks ago, U.S. regulators attempted to deal a fatal blow to the crypto industry, and now Bitcoin has hit a new high for 2023, while altcoins are steadily recovering. This article explores the institutional attitude towards Bitcoin, which has largely driven the widespread recovery of the crypto market.
For years, over a dozen asset management companies have been seeking regulatory approval from the U.S. Securities and Exchange Commission (SEC) to launch some form of physically-backed Bitcoin exchange-traded fund (ETF), but so far, applicants have received only silence or rejection.
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However, just last week, BlackRock, the world’s largest asset manager with over $9 trillion in assets under management and nearly a 100% approval record for ETFs, joined the list. Hope has been reignited that the current state of the BTC ETF might soon change, and BlackRock’s proposed ETF is seen by many as having a legitimate chance of SEC approval.
The market is now signaling that BlackRock’s application increases the likelihood of other physically-backed BTC ETFs being approved. The market premium of the Grayscale Bitcoin Trust fund (GBTC) relative to its net asset value (NAV) is a barometer of the likelihood of its physically-backed BTC ETF being approved. Currently, this discount is at a 2023 low of 33.5%.
The SEC’s issue
The first BTC futures ETF was approved by the SEC regulatory body in October 2021, but the agency has yet to approve a BTC physically-backed ETF.
Many of the SEC’s rejection letters for Bitcoin ETF physically-backed applications contain similar language, stating that the listing exchange has failed to fulfill the obligations under the Exchange Act to prevent fraud and market manipulation, using this as a reason for rejection.
In order to demonstrate that the listing exchange for the proposed physically-backed Bitcoin ETF can fulfill the obligations under the Exchange Act, the U.S. Securities and Exchange Commission has mandated “comprehensive surveillance-sharing agreements with significant regulated markets relating to the underlying or reference Bitcoin asset.”
The lack of US regulatory oversight in the Bitcoin spot market is hindering the potential for comprehensive monitoring sharing agreements to be reached. Applicants have long complained about this framework, arguing that if regulatory agencies are satisfied with ETFs holding asset derivatives, then logically they should also be satisfied with ETFs holding the underlying assets.
In addition, the SEC frequently accepts supervisory sharing agreements signed with regulated futures exchanges in commodity and currency markets, where unregulated spot trading is the norm (soybeans and dollars).
So why are these rules applied differently to Bitcoin, whose commodity attributes are so strong that even the SEC dare not risk its reputation to resist it? Perhaps the SEC’s decision is being forced by the “Operation Chokepoint 2.0” behind-the-scenes black hands…
Is regulation paving 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 feel a bit suspicious about this?
Is BlackRock’s ETF application just part of the government’s concerted efforts to elevate TradFi institutions to the helm of the cryptocurrency field? Or has BlackRock just seen the “ominous sign” and is looking for an opportunity to enter to fill the institutional trust vacuum caused by the SEC?
Regardless, Nic Carter sounded the alarm on Operation Chokepoint 2.0 in February, and in the following four and a half months, we witnessed regulatory agencies continuing their crackdown on banks, exchanges, and staking service providers related to cryptocurrencies.
First was BlackRock. Next was EDX: a cryptocurrency exchange tailored for institutions, created by TradFi giants such as Charles Schwab, Citadel Securities, and Fidelity, founded in September 2022, and officially launched on June 20, 2023.
Like any “exchange” in traditional finance, EDX only serves as a marketplace, matching buyers with sellers and separating trading functions from brokerage and custody services. Although different from the integrated model provided by CEXs such as Coinbase and Binance, EDX’s approach seems to comply with the SEC’s requirements for separating core trading functions.
Additionally, EDX limited its initial market to Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Bitcoin Cash (BCH). TradFi seems to be operating within the unwritten SEC rulebook, and EDX’s unique structure is likely to fit the agency’s definition of a “regulated” Bitcoin spot market.
Whether there is a real conspiracy here or just a series of operations tacitly approved by regulators, it is clear that governments are spending a lot of energy punishing cryptocurrency builders while paving the way for TradFi speculators on Wall Street.
Bull market coming?
It turned out that rumors of BlackRock’s application were the only factor signaling the rebound of the cryptocurrency market, which was then under endless regulatory pressure. The global asset management company stood out as the future seller of Bitcoin investment products.
Traders are now betting that institutions flooding into cryptocurrencies will reassess their narratives and sell BTC products to clients over the next few years, which means that users who currently hold cryptocurrencies may soon see huge profits.
Since BlackRock announced this news, the market has risen across the board, and altcoins have been boosted, but Bitcoin is the main beneficiary and has reached a high of $31,300 in the subsequent week-long bullish trend, its highest level since 2023.
While the short-term direction of asset prices remains unknown, especially in the volatile cryptocurrency market, the thoughtful decision made by the American financial giant to solidify its position in the industry proves that cryptocurrency will continue to exist.
TradFi giants seek profit opportunities, while current major players are apparently investing corporate resources to establish a foothold in the industry, with BlackRock hiring digital asset talent two weeks ago.
With prices still facing heavy resistance, the institution-driven rebound may be coming to an end (at least for now), but BlackRock’s move has given us confidence in cryptocurrency in the long run!
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