BlackRock, the asset management giant, recently raised the possibility of Bitcoin being reclassified as a security rather than a commodity in its spot ETF application to the US SEC. This prospect could have major consequences for the Bitcoin market, we explain.
Bitcoin could become a security
Last Monday, asset management giant BlackRock updated its Bitcoin spot ETF application with the U.S. Securities and Exchange Commission (SEC). The changes mainly concerned new information on the measures BlackRock will be taking to strengthen anti-money laundering and monitor unusual price movements.
On closer examination of the filing, it is notable that BlackRock raises the possibility of Bitcoin being reclassified as a security, rather than a commodity, by US institutions. BlackRock points out:
“Any enforcement action by the SEC or a state securities regulator asserting that Bitcoin is a security, or a court ruling to that effect, would be likely to have an immediate and adverse material impact on the trading value of Bitcoin, as well as on units [of the Bitcoin spot ETF]. Indeed, the business models underlying most digital assets are incompatible with the regulations applicable to securities transactions. “
The asset manager explains that if Bitcoin were reclassified as a security, it would greatly complicate trading in this cryptocurrency, and could have a significant impact on the value of Bitcoin and the ability of market players to resell the ETF.
Classifying a cryptocurrency as a security would imply its registration, the platforms’ compliance with new regulations, and the obligation for the players involved to comply with stricter financial securities laws. This could make the asset less accessible, which would have a negative impact on its value.
In the amendments submitted to the SEC earlier this week, BlackRock takes the example of its complaint against Ripple and its executives regarding sales of the XRP token:
“In the years leading up to the SEC’s action, XRP’s market capitalization sometimes topped $100 billion. However, in the weeks following the SEC complaint, XRP’s market capitalization fell to less than $10 billion, […]”
SEC prepares to deny Bitcoin spot ETF
Commercial litigation attorney Joe Carlasare commented on BlackRock’s mention of a possible change in Bitcoin’s status as interesting.
Interesting update to BlackRock / IShares S-1 filing regarding the concern that the SEC could take an approach that Bitcoin is a potential security
Seems silly, but apparently the SEC wants that language in there. pic.twitter.com/84sCkgFncC
– Joe Carlasare (@JoeCarlasare) December 5, 2023
In short, the changes to the ETF application are consistent with SEC Chairman Gary Gensler’s views that all cryptocurrencies are securities. For some observers, the inclusion of the possibility of Bitcoin being classified as a financial security in the SEC’s ETF application may be aimed at anticipating a possible rejection of that application.
