Blackrock is increasingly emerging as a catalyst in the cryptocurrency market. The world’s largest asset manager has filed an application for the registration of a new iShares Trust in the US state of Delaware, paving the way for a spot-based ETF on the digital currency Ether. Concurrently, the necessary documents for a listing on the New York-based Nasdaq technology exchange have been submitted to the U.S. Securities and Exchange Commission (SEC).
In response to the news, Ether returned above the $2,000 mark for the first time since July. Crypto enthusiasts anticipate significant inflows of funds from institutional investors with the approval of spot-based digital assets ETFs in the US.
Removal of barriers
In many cases, institutional investors cannot open digital wallets and trade digital currencies directly due to regulatory reasons. Index funds help overcome this barrier. Blackrock’s Ether vehicle would utilize a subsidiary of the Coinbase platform as a custodian and refer to a dollar reference rate from the Chicago Mercantile Exchange (CME).
However, only futures-based ETFs on digital currencies are currently tradable in the U.S. The introduction of the first of these vehicles in October 2021 initially generated excitement among investors, but the momentum has since waned. Price differentials between the futures and spot markets make trading futures-based ETFs inefficient and unattractive for institutional investors in general. Additionally, there are elevated expenses arising from the monthly transition to the subsequent contract.
Echo in the futures market
The prospect of an index fund directly investing in Ether is now leading to increasing institutional interest, paradoxically positively affecting the futures market as well. The value of open contracts on Ether at the CME rose to $435.56 million in November, representing an increase of over 9% since the beginning of the year.
In August, the value of open interest had fallen to $318.78 million. Yet, a decision by a US appellate court at the end of the summer month boosted sentiment in the crypto market. The court overturned a rejection by the SEC to investment firm Grayscale, which aims to convert its Bitcoin Trust into a spot ETF.
Since then, market participants have hoped that the regulatory authority will have to approve Bitcoin ETF registrations from major asset managers, including Invesco, Fidelity, and Blackrock. Bloomberg Intelligence analysts point out that an opportunity has recently emerged for the approval of the twelve pending applications with the regulatory agency. They estimate a 90% likelihood of approval for all the vehicles by January 10th.
Nonetheless, James Butterfill, Chief Researcher at Coinshares asset manager, and other observers warn against being overly confident about the approval. They highlight the market’s sensitivity to the ETF theme, emphasizing that disappointments could trigger significant price fluctuations.
Moreover, the segment is facing regulatory headwinds elsewhere. In the US, regulatory authorities are pursuing lawsuits against the trading platforms Binance and Coinbase, accusing them of operating exchanges illegally. The recent trial against Sam Bankman-Fried, founder of the collapsed digital assets giant FTX, also draws institutional investors’ attention to the dark sides of the crypto market. The jury found Bankman-Fried guilty of fraud and conspiracy, among other charges.
The FTX collapse marked a peak in the wave of insolvencies that kept investors on edge since May 2022. One of the first prominent companies to collapse was the Celsius platform, which attracted investors with high yield promises for lending digital currencies. Now, the lender is advancing its exit from bankruptcy: a New York judge recently approved a plan for creditors’ payouts. A successor company is expected to focus more on other business areas, such as mining new Bitcoin units. Analysts view this development as another positive signal for the digital assets segment.