Why is the crypto community generally pessimistic about applying for a Bitcoin ETF under BlackRock's high regulatory scrutiny?

This morning, BlackRock, one of the world's largest asset management groups, submitted a filing for a physical Bitcoin ETF to the US SEC through its subsidiary iShares, which has attracted high attention from the English-speaking community. According to the filing, the ETF is named "iShares Bitcoin Trust" and its assets are mainly composed of Bitcoin held by the trustee representing the trust, while the "trustee" is implemented through custody by Coinbase, a cryptocurrency trading platform.

Recently, under the huge regulatory pressure from the SEC and the situation where multiple spot Bitcoin ETFs have not been approved, it is very surprising that the world's largest asset management giant applied for a Bitcoin ETF. Jake Chervinsky, a practicing lawyer and advisor at Variant Fund, wrote on Twitter: "The SEC has been firmly refusing to approve spot Bitcoin ETFs for many years, and this attitude has taken root. Knowing the SEC's negative attitude towards this, BlackRock still hopes to list a Bitcoin ETF on Nasdaq. We should all know how important this is, right?"

As an asset management company with assets under management exceeding $10 trillion, BlackRock's assets under management even exceed Japan's GDP of $4.97 trillion in 2018. BlackRock, Vanguard Group, and State Street Bank are even known as the "three giants," controlling the entire index fund industry in the United States. Therefore, BlackRock's submission of a spot Bitcoin ETF filing to the US SEC has caused quite a stir in the community.

BlackRock applies for Bitcoin ETF, crypto community reacts negatively

Additionally, BlockBeats has found that the English-speaking community does not view BlackRock's Bitcoin ETF application as a positive signal, despite the company's resistance to regulatory pressure. On Twitter, comments regarding the Bitcoin ETF application frequently include phrases such as "traditional financial giant," "financial elites," and even "choke point action 2.0."

Well-known KOL AutismCapital (@AutismCapital) believes that BlackRock's decision to launch an ETF under the regulatory pressure of the US Securities and Exchange Commission (SEC) may indicate that the SEC is likely conducting a cleanup operation. The goal is to eliminate "low-level scammers" in the cryptocurrency field, making it easier for "elite giants" in traditional finance in the United States to rebuild a gaming platform according to their own rules.

Hsaka (@HsakaTrades) listed several events of traditional financial giants entering the cryptocurrency industry on Twitter, implying the "big fish financial" nature of BlackRock's application for a Bitcoin ETF:

- BlackRock files for a spot Bitcoin ETF;

- Soros Fund Management has stated that the timing is ripe for TardFi to acquire cryptocurrency;

-Rumors have it that EDX, a cryptocurrency exchange supported by Citadel, will go live later this year.

Previously, Dawn Fitzpatrick, CEO of Soros Fund Management, spoke at the Bloomberg Investment Summit, stating that the time for traditional finance (TradFi) to acquire cryptocurrency technology has matured. Dawn Fitzpatrick stated that cryptocurrency will continue to exist, and currently, for existing traditional financial companies, this is a huge opportunity in a truly leading industry. In addition, financial giants such as Citadel Securities, Charles Schwab, and Fidelity Digital Assets have announced the launch of the cryptocurrency exchange EDX Markets. Many people believe that this is the latest evidence of Wall Street's progress in digital assets during the cryptocurrency winter.

Scimitar Capital partner thiccy (@thiccythot_) pointed out that the US Securities and Exchange Commission has approved a considerable number of Bitcoin futures ETFs, but there is no spot ETF. Currently, the asset management scale of spot ETFs traded in the US stock market is very small. In thiccy's view, spot ETFs are "garbage", and the US Securities and Exchange Commission has long denied spot ETFs, citing concerns about market manipulation and a lack of supervision sharing agreements between the "massive regulated market" and regulated exchanges. "This concern is somewhat justified, as Coinbase and other US exchanges account for less than 10% of Bitcoin spot trading volume," thiccy wrote in a tweet.

Bloomberg's senior ETF analyst Eric Balchunas (@EricBalchunas) believes that there is no indication that the SEC will approve the application, but given BlackRock's close relationship with them, perhaps BlackRock knows something? Another interesting point is that Coinbase has won custody rights, but if the spot ETF is approved, it will lose the cost pressure of customers and trading. Think about it, why should I pay Coinbase 40-100 basis points per transaction when the ETF is one basis point?

真正的正规军要入场？

translates to

Will the real regular army enter the field?

BlackRock's application for a spot Bitcoin ETF was not without warning signs. As early as the beginning of 2021, BlackRock CEO Larry Fink publicly stated that he "is optimistic that Bitcoin will become a global market asset," and Rick Rieder, the firm's Chief Investment Officer for Fixed Income, subsequently stated that BlackRock has already begun to get involved in Bitcoin.

In the same year, BlackRock announced that its global allocation fund had obtained some Bitcoin exposure through CME's Bitcoin futures issuance. Two BlackRock fund companies, the BlackRock Global Allocation Fund and BlackRock Funds V, stated in their investment prospectus (497 Prospectus) submitted to the US Securities and Exchange Commission that some of their funds can participate in Bitcoin-based futures contract trading. The prospectus also stated that not all Bitcoin futures contracts are available for investment, but only those registered with the US Commodity Futures Trading Commission (CFTC) and settled in cash.

Source: BlackRock Funds V 497 Prospectus

Interestingly, this is not the first time that BlackRock has partnered with Coinbase, aside from having ample experience in gaining exposure to Bitcoin risks.

BlackRock's past cooperation with the "Crypto Regular Army": Coinbase and Circle

On August 4th, 2022, BlackRock announced an agreement with the cryptocurrency exchange Coinbase to provide cryptocurrencies to institutional investors, starting with Bitcoin. According to Coinbase's blog post, BlackRock will use Coinbase Prime to offer this service, which will enable its Aladdin institutional clients to access cryptocurrency trading, custody, major brokerage, and reporting capabilities.

On August 11 of the same year, BlackRock launched a private trust to provide spot bitcoin risk exposure to its US institutional clients. The trust will be offered to institutional clients in the US and will be BlackRock's first product to directly engage with bitcoin prices. BlackRock stated in a statement: "Despite the sharp decline in the digital asset market, we still see strong interest from some institutional clients in how to efficiently and economically access these assets using our technology and product capabilities."

Regarding USDC issuer Circle, BlackRock participated in a $400 million financing round for Circle in the second quarter of 2022, and Circle invested most of its reserve funds in the "Circle Reserve Fund" government currency market fund managed by BlackRock. As of the time of writing, according to BlackRock and Circle's official website, the asset size of the Circle Reserve Fund has reached $24.787 billion, accounting for 86% of Circle's total reserve funds ($28.5 billion), with the remaining funds temporarily held as bank deposits.

In January of this year, the well-known financial think tank, the Bank Policy Institute (BPI), also released a research article pointing out that USDC may become a "Backdoor CBDC" with the help of BlackRock.

A study has found that BlackRock has planned to apply for permission for the fund to use the Federal Reserve's Overnight Reverse Repurchase Agreement Facility (ON RRP). Once approved, this means that anyone who wants to hold an equivalent amount of reserve dollars in the Federal Reserve can do so by purchasing USDC, making it a "Backdoor CBDC". Anyone in the world can use USDC to participate in ON RRP in the Federal Reserve system.

Previously, BlockBeats reported that USDT encountered FUD in the Curve 3pool recently, and the trading pair used by both sellers and arbitrageurs was USDC. (Related reading: "Is USDT facing serious selling pressure as market makers exit?")

Choking Point Action 2.0

In the discussion about the application for the BlackRock spot ETF, another popular view in the community is "Operation Chokepoint 2.0". Well-known KOL and serial entrepreneur Andrew (@AP_Abacus) pointed out the subtle timing of BlackRock's ETF application in his own tweet:

-The US Securities and Exchange Commission has filed lawsuits against four major cryptocurrency trading platforms, including Gemini, Coinbase, Binance US, and Kraken. This means they may be investigated for allegedly violating US securities trading regulations.

- Meanwhile, the Federal Reserve has shut down Silvergate Bank and Signature Bank, two well-known banks that provide services for the cryptocurrency industry.

- Additionally, the Federal Reserve is deciding whether to approve the requests of two crypto-friendly banks, Custodia Bank and Protego Trust.

- At this time, BlackRock began to apply for a Bitcoin ETF.

In March, several banks in the United States were forced to declare bankruptcy and liquidate. It was later discovered that several of the banks that were liquidated, including Signature Bank, Silicon Valley Bank, and Silvergate Bank, were friendly to the cryptocurrency industry. Signature Bank, in particular, had a significant portion of its daily business related to the cryptocurrency industry. Many believe that the Biden administration is currently executing a seemingly coordinated plan across multiple agencies to block the flow of funds between banks and cryptocurrency companies, and this trend is being referred to as "Operation Choke Point 2.0".

The name 'Operation Choke Point 2.0' comes from a program launched by the US Department of Justice (DOJ) in 2013 aimed at combating fraud and illegal activities such as money laundering and drug trafficking. The US government put pressure on banks that had business dealings with high-risk merchants to prevent certain businesses from accessing financial services. This measure sparked controversy at the time as it led to many legitimate but deemed high-risk businesses suffering severe liquidity crises. The action was also seen as a movement during the Obama era to cancel legitimate but politically unpopular banking businesses.

After the bankruptcy of several crypto-friendly banks, it seems that American crypto companies have become "homeless" in terms of banking services. According to CoinDesk, most banks remain silent on this issue, and some banks have explicitly stated that they are unwilling to accept crypto customers. (Related reading: "Is the US government's "whole-of-government" crackdown on the crypto industry causing crypto resources to flee?")

ReflexivityRes, a digital asset research company co-founded by Will Clemente (@WClementeIII), stated on Twitter that if BlackRock's spot ETF application is approved, "Operation Choke Point 2.0" is likely to be carefully planned. The goal is to drive out native cryptocurrency companies and introduce large traditional companies that partner with the US government in an attempt to control Bitcoin and cryptocurrencies.

Of course, these views are all unilateral speculations from the community, and there is no official document from authoritative sources as actual evidence.

Can BlackRock's spot ETF application be approved?

Another topic that has sparked community discussion is whether the BlackRock Bitcoin ETF can be approved. Previously, the SEC approved some futures-based Bitcoin ETFs, but has never approved attempts to open spot Bitcoin ETFs, including Jacobi Asset Management, Bitwise, Valkyrie, Kryptoin, SkyBridge, NYDIG, GlobalX Digital Assets, One River, WisdomTree, etc.

Last April, Ark Investment Management, owned by Cathie Wood, and Swiss investment product provider 21Shares attempted to list a Bitcoin spot ETF in the United States, but were rejected. The two companies then resubmitted an application in May, which was rejected again, with the reason being that "the Cboe BZX Exchange, on which the ETF is planned to be listed, failed to demonstrate that its proposal meets the requirements of the SEC to prevent fraud and other malicious activities."

After Grayscale's application was rejected, even a court debate with the SEC in the District of Columbia ensued. The SEC believes that Bitcoin futures ETFs are more resistant to manipulation than the spot market, and this is one of the reasons for rejecting Grayscale's spot ETF application. Judge Rao questioned this: "The SEC needs to explain how it understands the relationship between Bitcoin futures and spot prices. A futures contract is essentially a derivative. They are together 99.9% of the time, so what is the difference between the two in the eyes of the SEC?" The SEC also argued that "99% correlation does not equal causation, and futures data only refers to once-daily prices, not intraday prices. In the eyes of the SEC, the Bitcoin spot market is indisputably decentralized, in stark contrast to Bitcoin futures traded only on the Chicago Mercantile Exchange (CME)."

So far, the SEC has not approved any Bitcoin exchange-traded funds (ETFs) for listing on stock exchanges. Therefore, VanEck CEO Jan believes that investors are unlikely to see a Bitcoin spot ETF in the US anytime soon, and perhaps there is no hope of listing in the US within the next year and a half. Interestingly, the founder and CEO of CustodiaBank also initiated a vote:

If the application for a Bitcoin spot ETF by BlackRock is approved, what do you think about the US government?

1. Corrupt;

2. Diligent and problem-free

Among them, more than 80% of voters believe that if the application of this ETF is approved, it will further reflect the corruption situation of authoritative departments in the United States.

Regarding the question of whether "BlackRock's application will be approved," Scimitar Capital partner thiccy (@thiccythot_) believes that as the largest and most respected asset management company, BlackRock may establish a special relationship with the SEC. In addition, the pressure from the Republican Party on Gensler is increasing, and the SEC may make some arbitrary decisions. In thiccy's view, if BlackRock's ETF is approved, it will be a huge driving force for the cryptocurrency industry.

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