On the Margin Newsletter: What needs to happen before ETH ETFs hit your brokerage accounts

Welcome to the On the Margin Newsletter, brought to you by Ben Strack, Casey Wagner and Felix Jauvin. Here’s what you’ll find in today’s edition:

• The latest movement in the ether ETF saga after initial SEC approvals, and what needs to happen before the products hit your brokerage account
• A potential stand-off is brewing after Riot Platforms’ “hostile bid” to acquire Bitfarms
• A look ahead at what Congress is up to and whether or not the new crypto bills will actually make it to the President’s desk

$19,925,658,064

That’s the assets under management in BlackRock’s iShares Bitcoin Trust (IBIT) as of Thursday, according to the fund giant’s website. That makes it the world’s largest bitcoin ETF — trumping the roughly $19.7 billion in Grayscale Bitcoin Trust (GBTC).

The ranking change-up happened mid-week, less than five months after US spot bitcoin ETFs hit the market. Total inflows for IBIT over that span are $16.5 billion. GBTC has hemorrhaged roughly $17.8 billion since converting to an ETF in January.

The IBIT AUM lead is one BlackRock may never relinquish, given its brand, liquidity and competitive fees.

The SEC isn’t messin’ around

All is not quiet on the ether ETF front.

New filings suggest diligence by fund issuers and the SEC to get such products trading sooner rather than later — a welcome sign in a world often marred by regulatory red tape.

As you must know by now, the SEC on May 23 approved the 19b-4 proposals by the exchanges on which these ETH funds would list. But the path to launch is not done.

By midday Friday, fund issuers VanEck, BlackRock and Grayscale had turned in amended registration statements, or S-1s — the other documents in need of clearance before the funds can hit the market.

More fund groups were expected to submit amended applications shortly after.

A source familiar with the filings told Blockworks that the SEC has given the issuers “informal guidance” that the agency will offer comments on their S-1 amendments by the end of next week.

We’ve come a long way. Remember, at the start of this year, many crypto and finance industry watchers didn’t even know what 19b-4s and S-1s were.

The SEC needs to clear both types of proposals before you see these funds show up on your brokerage platform of choice. Unless you are a customer of Vanguard, of course, which blocks the trading of crypto ETFs.

The expected quick comments back from the SEC, per the source, would back the premise that the SEC’s sign-off on the 19b-4 proposals was indeed due to a political about-face.

It would mean the agency wants these to launch and isn’t messing around. Just like how 71 Democratic House members surprised many by voting for the pro-crypto FIT21 Act last week. Perhaps both are meant to send a message.

BlackRock revealed seed capital amounting to $10 million in its latest S-1. It named BMO Capital Markets, Jane Street Capital, Macquarie Capital and Virtu Americas as authorized participants.

Van Buren Capital general partner Scott Johnsson alluded to this flex by the world’s largest asset manager.

VanEck’s seed capital proceeds totaled $100,000, according to its filing. Grayscale did not offer such details in its registration amendments.

But those intricacies at this moment are not as important as the fact that things are moving along. After all, you know what they say about stagnant water — harmful bacteria like E. coli and Legionella can thrive in it.

You’ve never heard that? Well it’s a thing. That’s why people enjoy oceans and streams more than swamps and marshes.

Bloomberg Intelligence analysts Eric Balchunas and James Seyffart have become celebrities of sorts to a segment of the crypto and finance population, particularly on the platform formerly called Twitter.

Balchunas put out an informal betting line on X of when spot ether ETFs could hit the market: “End of June launch a legit possibility, [although] keeping my [over/under] date as July 4th.”

Just as some legal and compliance teams likely spent a portion of Memorial Day weekend adjusting S-1 language, perhaps more barbecue-centric holiday gatherings will be ruined a little over a month from now as final arrangements are made.

— Ben Strack

Riot versus Bitfarms

Bitcoin mining giant Riot Platforms wants to acquire rival Bitfarms.

Bitfarms isn’t having it.

And while a special committee is weighing buyout offers, the company said it believes “continued execution towards this growth plan maximizes shareholder value.”

Sources have said Bitfarms is likely to drag out this process, particularly as the company has signaled it is engaging with other interested parties.

“Obviously Riot tried to trump Bitfarms and other potential buyers with their purchase of 10% of the company,” said Tidal Financial Group portfolio manager Dan Weiskopf. “The good news for BITF shareholders is that now people are at the table together with a strategic alternatives process and it is likely that Riot is not alone.”

Upcoming proposals are likely to be higher than the initial “hostile bid” of $2.30 per share, noted Architect Partners managing director Peter Stoneberg.

Bitfarms’ share price stood at $2.21 at 2 pm ET Friday — a roughly 11% increase from five days ago. Riot stock, at that time, was down nearly 4% over that span.

With Riot’s stock price “on its back,” Weiskopf told Blockworks, Riot CEO Jason Les “is going to have to show his cards very soon.”

— Ben Strack

Congress has its plate full

The US House was busy this month.

Lawmakers from both chambers return to the Capitol next week after a brief recess. Don’t hold your breath for any additional movement on legislation, though.

Some industry members say a delay isn’t all bad.

Representatives last week advanced two bills: the Financial Innovation and Technology for the 21st Century Act (FIT21) in a 279-136 vote and the CBDC Anti-Surveillance State Act in a 216-192 vote.

Both pieces of legislation — complete with a handful of amendments — passed with bipartisan support, though far fewer Democrats jumped on board the anti-CBDC train. They now head to the Senate, where they face tougher odds.

But some industry members say now is the time to pump the brakes. That getting a crypto bill past a full floor vote is victory enough, for now.

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Some critics of FIT21 say the Act is too generous in delegating power to the SEC. Still, the chances that either of the two bills escapes the Senate without new amendments are next to none.

Rep. Wiley Nickel, D-N.C., one of FIT21’s three Democratic co-sponsors, told Blockworks he’s “optimistic” about the bill’s chances in the Senate, and he’s been spending a lot of time on the other side of the Hill advocating for passage.

Even with 71 Democrats getting on board with FIT21 in the House, those opposed are expected to lobby in the Senate just as hard. Rep. Maxine Waters, D-Cali., who dubbed FIT21 the “Not Fit for Purpose Act,” said last week the legislation serves to deregulate the crypto industry.

Neither bill has a date on which the Senate will vote on them. Given many lawmakers are busy working on their reelection campaigns, it could be a while.

— Casey Wagner

Bulletin Board

• There was another security breach on the crypto front Friday. Japanese crypto exchange operator DMM Bitcoin said it suffered an “unauthorized leak” of more than $300 million worth of bitcoin.
• Coinbase is still fighting the SEC in court. The exchange on Friday submitted its closing brief in the Third Circuit challenging the SEC’s denial of Coinbase’s rulemaking petition.
• Stay tuned for this week’s On the Margin podcast roundup. Find it Saturday morning on YouTube or wherever you get your podcasts.

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