The world’s biggest asset manager, Blackrock, has warned in its recent spot Bitcoin ETF filing update of the basic potential for BTC to be actually classified as a security by state regulators, court rulings, or the U.S. SEC.
In this context, Blackrock cautioned, “If a digital asset is determined or asserted to be a security, it is likely to become difficult or impossible for the digital asset to be traded, cleared or custodied in the United States through the same channels used by non‑security digital assets.”
Bitcoin’s Potential Security Status:
Any action for enforcement by a state securities regulator or the SEC asserting that BTC is a court decision or a security to that point would be easily expected to have an adverse and immediate impact on Bitcoin’s trading value and the BTC ETFs.
The filing further added, “If a digital asset is determined or asserted to be a security, it is likely to become difficult or impossible for the digital asset to be traded, cleared or custodied in the United States through the same channels used by non‑security digital assets, which in addition to materially and adversely affecting the trading value of the digital asset is likely to significantly impact its liquidity and market participants’ ability to convert the digital asset into U.S. dollars.”
Blackrock brought up the instance of the Securities Exchange Commission suing Ripple as well as its executives over XRP’s sales. The asset management firm actually noted, “In the years prior to the SEC’s action, XRP’s market capitalization at times reached over $100 billion. However, in the weeks following the SEC’s complaint, XRP’s market capitalization fell to less than $10 billion.”
Joe Carlasare, a commercial litigator, commented on BlackRock’s warning about Bitcoin’s possibility of being known as a security, “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. Prior versions didn’t have it. That, it has been adopted by Blackrock as a potential disclosed risk for ETF investors.”
John Reed Stark, the former internet enforcement chief of SEC, took to X to respond to Carlasare’s assertion, “Joe might be right here. Why would the SEC go to all the trouble of requiring a proviso like this if the SEC planned to decline the application?”
But, talking about his general skepticism, Stark also stressed, “While I still believe the 90% likelihood of an SEC bitcoin spot ETF approval seems somewhat random, Joe is a great lawyer who may be spot-on in his thoughtful and meticulous analysis. On the other hand, it remains difficult to predict the SEC actions behind closed doors.”
Nonetheless, SEC’s former official cautioned: “It seems to me that supporting a bitcoin spot ETF for Chair Gensler would not only evidence capitulation but is also inconsistent with his behavior and practice on so many other fronts. It just comes down to human nature: Does Chair Gensler really want his legacy to be the approval of a bitcoin spot ETF, which would represent such an obvious personal loss to the mob and such an obvious threat to investors?” Gensler mentioned multiple times that he still views all cryptocurrency tokens as securities, except Bitcoin.