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BlackRock's Pursuit of Bitcoin ETF Navigates Regulatory Challenges with Coinbase Partnership

BlackRock's partnership with Coinbase for surveillance-sharing aims to enhance market surveillance for its proposed Bitcoin ETF amid SEC scrutiny.

Wed, 05 Jul 2023, 03:05 am UTC

Investment management titan BlackRock has been navigating a complex regulatory maze in its quest to inaugurate a Bitcoin spot exchange-traded fund (ETF). Their recent move includes a partnership with digital currency exchange Coinbase in the form of a "surveillance-sharing agreement".

This new agreement, made public on June 29 in a document submitted to the U.S. Securities and Exchange Commission (SEC), represents a new chapter in establishing the ETF. BlackRock's filing with the SEC was actually a reiteration of the Nasdaq's proposed rule change, allowing BlackRock's Bitcoin ETF to be listed. This agreement, initially formed on June 8, aims to enhance Nasdaq's market surveillance mechanism by allowing access to critical data on Bitcoin's spot trades.

Interestingly, this filing arrived hot on ARK Investment Management's amendments to their own Bitcoin ETF application. These changes involved a similar surveillance-sharing agreement with the Chicago Board Options Exchange and an undisclosed U.S. crypto exchange. Speculation has been rife that this undisclosed exchange might be Coinbase, hinting at a potential conflict with BlackRock's application.

The SEC's response on June 30, however, expressed the need for more clarity and completeness in these crypto ETF filings. It particularly urged for more comprehensive information regarding surveillance arrangements. BlackRock initially submitted its application for the Bitcoin ETF on June 15.

As of now, the U.S. securities watchdog has yet to give its nod to any spot ETF tied to crypto investments, despite a multitude of applications. This led to Grayscale Investments taking legal action against the SEC in June 2022. Grayscale accused the regulator of inconsistent treatment of comparable investment instruments following the rejection of its own Bitcoin ETF proposal.

In the ongoing saga of crypto ETFs, BlackRock and Coinbase's partnership may set a precedent, as the journey towards approval requires satisfying a regulatory appetite for enhanced surveillance.

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