Wall Street: SEC, I want Bitcoin

Source: Bankless

Compilation: Bitui BitpushNews, Mary Liu

It’s been a June of mixed emotions in the crypto community. A few weeks after U.S. regulators attempted to deal a fatal blow to the crypto industry, now Bitcoin is hitting new 2023 highs and altcoins are recovering steadily. This article will explore the institutional attitude towards Bitcoin, which has largely driven the broad recovery in the crypto market.

Over the years, a dozen asset managers have been seeking 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 received only silence or refusal.

Yet just last week, BlackRock, the world's largest asset manager with more than $9 trillion in assets under management and a track record of nearly 100% ETF approvals, joined the list. There has been renewed hope 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 gaining SEC approval.

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

SEC Questions

The first BTC futures ETF was approved by SEC regulators in October 2021, but the agency has been slow to approve a BTC spot ETF.

Numerous rejection letters from the SEC for bitcoin ETF spot applications contain similar language, citing the listing exchange’s failure to meet its obligations under the Exchange Act to prevent fraud and market manipulation as the reason for the rejection.

To demonstrate that exchanges listing proposed spot Bitcoin ETFs are able to meet their obligations under the Exchange Act, the SEC prescribes a “comprehensive supervisory sharing agreement for a larger regulated market related to underlying or reference Bitcoin assets.” ".

Lack of US regulation in the Bitcoin spot market hampers potential full surveillance The conclusion of a sharing agreement. Applicants have long criticized this framework, arguing that if regulators are comfortable with ETFs that hold derivatives of assets, they should logically be satisfied with ETFs that hold that underlying asset as well.

Additionally, the SEC routinely accepts oversight sharing agreements with regulated futures exchanges in commodity and currency markets where unregulated spot trading is the norm (soybeans and dollars).

So why do these rules apply in a different way to Bitcoin, whose commodity attributes are so strong that not even the SEC dares to block its own reputation against it? Perhaps, the SEC's decision was forced by the behind-the-scenes of "Operation Neck Stuck 2.0"...

Regulation paving the way for Wall Street giants?

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

Is BlackRock's ETF application just part of the government's scheming to put TradFi at the helm of the crypto space? Or has BlackRock just seen "the writing on the wall" and is looking for an opportunity to step in to fill the institutional trust vacuum created by the SEC?

Either way, Nic Carter first sounded the alarm about Operation Stuck 2.0 in February, and over the next four and a half months we’ve seen regulators continue to crack down on cryptocurrency-related banks, exchanges, and staking providers. Suppress.

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

Like any "exchange" in traditional finance, EDX simply acts as a marketplace, matching buyers with sellers and separating the trading function from the brokerage and custody services. While distinct from the all-in-one model offered by CEXs such as Coinbase and Binance, EDX's approach appears to comply with the SEC's requirement for separation of core trading functions.

Additionally, EDX limits 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 fits the agency’s definition of a “regulated” bitcoin spot market.

Whether or not there’s a genuine conspiracy theory here, or just a string of regulators’ tacit approval, it’s clear that governments are spending a lot of energy punishing the builders of the cryptocurrency space while paving the way for Wall Street’s TradFi speculators.

Is the bull market coming?

Rumors of a BlackRock filing turned out to be the only thing that marked the bottom of the crypto market, which was suffering an endless regulatory onslaught, from which global asset managers emerged as future sellers of bitcoin investment products.

Traders are now betting that institutions that have piled into cryptocurrencies will realign their narratives to sell clients BTC over the next few years, meaning users who hold cryptocurrencies now could soon see big gains.

Markets have rallied across the board since BlackRock's announcement, with altcoins getting a boost, but Bitcoin was the main beneficiary and hit a 2023 high of $31,300 in a bullish week-long price move that followed.

While it’s always unknown where asset prices will go in the short-term, especially in the volatile crypto market, the deliberate decision by U.S. financial giants to strengthen their presence in the industry is proof that cryptocurrencies are here to stay.

The giants of TradFi are looking for opportunities to make profits, and at present, major players are clearly investing corporate resources to establish a foothold in the industry. BlackRock started recruiting digital asset talent two weeks ago.

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