Analysts: Regulator may approve BlackRock’s spot Bitcoin ETF

American investment firm BlackRock has a 50 percent chance of gaining regulatory approval for its spot Bitcoin Exchange Traded Fund, said Bloomberg analyst Eric Balchunas on Tuesday.

Balchunas said the U.S. Securities Exchange Commission (SEC) might see BlackRock’s ETF registration more favorably after the Grayscale case. Grayscale appealed to the SEC’s decision to reject its 2022 application to convert the Grayscale Bitcoin Trust (GBTC) to a spot Bitcoin ETF.

The analyst explained that accepting BlackRock’s application will allow the federal body to “save face” since Grayscale may win the lawsuit. He said BlackRock is a “trusted ‘adult' TradFi” company compared to Grayscale.

Bloomberg Intelligence senior litigation analyst Elliott Stein forecasts a 70 percent chance for Grayscale’s win. Stein said the Grayscale’s winning chance increased from 40 percent after the conclusion of the parties’ oral arguments. He pointed out that all judges on the panel “appeared” to side with the crypto company. According to Stein, the Grayscale case will conclude by August.

Like Balchunas, CoinRoutes co-founder Dave Weisberger predicted that the regulator would approve the BlackRock ETF — called the iShares Bitcoin Trust. Weisberger explained that the participation of an established firm like BlackRock in spotting Bitcoin derivatives “undercut” the SEC’s arguments for rejecting previous applications.

The agency said it could not guarantee that the market is free from manipulation and fraud. The only regulated crypto-ETFs in the U.S. are based on Bitcoin futures contracts, listed on the Chicago Mercantile Exchange.

Analysts also note that BlackRock’s application is different from its predecessors. The iShares Bitcoin Trust will be listed on the Nasdaq exchange. This exchange will have a “surveillance-sharing agreement” with a U.S.-based spot Bitcoin trading platform. BlackRock has proposed Coinbase as a custodian for the ETF.

“If Nasdaq is able to enter into an agreement with an exchange such as Coinbase, that could theoretically clear a pathway towards approval since it would directly address the SEC’s main concern,” said ETF Store president Nate Geraci.

In previous rejections, the SEC said an agreement on surveillance “with a regulated market of significant size” was a way for applicants to meet the agency’s rule in preventing manipulation and fraud in the underlying market.

Growing demand for spot Bitcoin derivatives

Analysts say there is a growing demand for spot digital asset derivatives. A spot Bitcoin ETF allows institutional and retail investors to take part in the Bitcoin market without creating a digital wallet. Investors can join the digital currency market without registering with a crypto exchange.

ETF is a suitable investment product for both beginner and experienced investors. According to financial experts, the product is affordable and has lower risks than individual equities.

The SEC’s approval of iShares Bitcoin Trust is predicted to prompt more spot Bitcoin ETF applications. Fidelity, Wisdom Tree and Invesco have followed BlackRock’s steps with their own proposals.

Sources also said large banks, such as JPMorgan and Bank of America, have shown interest in offering similar services. Product offerings from these “trusted” firms will increase the participation rate in the crypto market.

The BlackRock case has fueled a rally in the Bitcoin market, with the token trading above the $30,000 level. Oanda senior market analyst Edward Moya said approval of BlackRock’s application would prompt the token to rally up to $40,000.

GBTC has jumped by more than 134 percent this year, per Google Finance’s data. The trust’s share price discount declined to 31 percent on Monday, the lowest since September last year. The lower discount rate indicates a positive sentiment toward the investment product.