BlackRock’s Spot Bitcoin ETF Plan Appears To Be A Case Of Perception Bending Reality

BlackRock’s
BLK
request to register a spot-market bitcoin ETF looks as much like a self-fulfilling strategy as an attempt to gain approval for an investment format that has repeatedly been rejected by U.S. regulators.

The world’s largest money manager, with $9.1 trillion of assets under management at the end of Q1, submitted a preliminary prospectus for the iShares Bitcoin
BTC
Trust, late on Thursday afternoon New York time. The exchange-traded fund (ETF) is meant to own bitcoins that are to be held in custody by Coinbase, the largest U.S. crypto exchange.

The Securities and Exchange Commission has insisted that spot bitcoin is not safe enough to be offered to retail investors, although funds based on bitcoin futures are allowed. In denying a request for VanEck to offer a bitcoin ETF in March, the agency said the Cboe division that applied to list the fund had not met requirements that it be “designed to prevent fraudulent and manipulative acts and practices” and “to protect investors and the public interest” because the underlying spot bitcoin market is too opaque.

The SEC’s consistent opposition to spot bitcoin ETFs raises the question of why BlackRock would go through the bother of filing a prospectus for a fund that was bound to be denied. The answer may be that its name, size and traditional finance background would go a long way toward overcoming the agency’s opposition to an inevitable development.

“As the world’s largest asset manager, BlackRock sees an opportunity to maintain its position in global capital markets through its ETF application,” Jeff Feng, co-founder of SEI Labs and a former Goldman Sachs analyst, tells Forbes. “If they succeed, it signals a strong sense of trust in their leadership by the SEC to navigate the challenges of a revolutionary product alongside regulators while also legitimizing bitcoin.”

Feng—whose company backs the SEI blockchain, designed for trading digital assets—says that legitimacy could extend to other cryptocurrencies. “Given BlackRock’s change in its position about bitcoin over the last few years, it’s clear that they do not view bitcoin and tokenization as something that can be ignored as a globally traded asset.”

Larry Fink, the BlackRock CEO, called bitcoin an “index of money laundering,” in 2017, but he has since tempered that view. In August, BlackRock announced that it would offer some institutional clients bitcoin trading services in an arrangement that also involves Coinbase.

A BlackRock spokeswoman confirmed the submission of the registration statement but declined further comment because of “regulatory filing restrictions.”

The ETF filing comes as the SEC has been cracking down on the cryptocurrency industry. Last week, it sued Binance, the world’s largest crypto exchange, as well as Coinbase, alleging they were operating as unlicensed securities exchanges that listed unregistered securities, a category that it maintains includes most cryptocurrencies.

Digital Currencies Group’s Grayscale is suing the SEC over its refusal to allow the fund-management company to convert a bitcoin trust into an ETF in a case that began in June of last year. Grayscale contends the SEC’s stance that spot prices are subject to manipulation but futures are not is illogical, since the latter reflect the former.