On Monday, XRP prices jumped to 73 cents from 65 cents in 25 minutes after rumors spread BlackRock (NASDAQ: BLK) had filed for an XRP ETF in the U.S. state of Delaware. However, this 12% spike was quickly lost as the filing turned out to be fake, leading traders investing in XRP futures to lose around $7.26 million in 24 hours.
The drama lasted for about an hour on November 13 as X (formerly Twitter) users spread the news of the Delaware filing purportedly showing BlackRock was registering the “iShares XRP Trust,” which would have been a precursor to launching an exchange traded fund (ETF).
Eric Balchunas, senior ETF analyst for Bloomberg, later said on X that BlackRock had confirmed to him that the filing was fake and speculated that it must have been made by “some whacko” using a BlackRock executive name.
This erroneous filing would be all fun and games if it weren’t for the market reaction reminding the U.S. Securities and Exchange Commission (SEC)—who will ultimately have the say on whether it permits a spot digital asset EFT—that the area is rife with market manipulation.
An ETF is a type of exchange-traded product (ETP), which is a group/collection of stocks or bonds that you can buy or sell on the stock exchange. In theory it offers diversification and trades throughout the day like a stock, making it a potentially convenient way for investors to gain exposure to various assets.
A digital asset spot ETF would be a fund that directly holds and tracks actual tokens like BTC, BSV, Ethereum, and/or XRP. Investors would be able to buy shares of the ETF, which represents ownership in the real assets, providing a simple way to invest in the digital asset market without directly owning and managing individual tokens.
Such an ETF would, if the SEC allowed it, operate within the framework of regulatory oversight, providing an accessible and familiar investment vehicle for those who may be cautious about directly owning digital assets.
However, this is likely one of the reasons the SEC is hesitating over permitting such an investment vehicle, as it would also increase exposure to a market it views as highly volatile and rife with fraud, but with the added danger of a perceived endorsement from a globally recognized major investment manager such as BlackRock or Grayscale.
Unfortunately for spot digital asset ETF advocates, the incident on Monday was also not the only instance in recent memory of fake news leading to market shenanigans that might damage the perception of such a product in the eyes of the SEC.
BTC ETF fake
Last month provided an embarrassing moment for advocates of BlackRock’s proposed BTC ETF, when an October 16 post on X by Cointelegraph caused BTC to rise suddenly, before giving up nearly all its gains after the investment management behemoth came out and denied the false report.
The fake news that the SEC had approved the IShares Spot BTC ETF sent BTC to over $30,000 in the space of an hour before falling back down again.
Cointelegraph, the source of the report, later retracted the story. It said:
“We apologize for a tweet that led to the dissemination of inaccurate information regarding the Blackrock Bitcoin ETF. An internal investigation is currently underway. We are committed to transparency and will share the findings of the investigation with the public once it is concluded within 3 hours.”
BlackRock later confirmed to Reuters that “the iShares Bitcoin ETP application is still under review by the SEC,” but the damage had seemingly been done, with accusations of market manipulation by ‘insiders’ already rampant. Some in the industry were quick to condemn—or partake in some schadenfreude—whilst others pointed out this kind of event is no isolated incident.
Whalewire, an account that sells itself as a “source of unparalleled and unbiased finance and crypto news,” noted that “this is like the 10th time this account (along with many other crypto pages) have spread false information that has resulted in price movements, in an effort to enrich insiders.”
This troubling pattern is almost certainly going to reinforce the SEC’s prevailing mood when it comes to a ‘spot crypto ETF’ whilst digital asset markets nervously wait on news of several pending applications.
SEC v Crypto ETFs
Earlier in the year, the SEC accepted, for review, applications to create spot BTC ETFs from six firms, including BlackRock.
However, on July 30, the SEC indicated that the flurry of applications it had received over the previous few weeks was “inadequate” and thus not likely to receive the regulator’s stamp of approval.
BlackRock and the Nasdaq were forced to refile their application and reveal who the sharing partner would be that would list the ETF, should it get approval. It soon became clear why they had not initially offered this information freely, as the trading partner in question turned out to be Coinbase (NASDAQ: COIN). The embattled digital asset exchange is the subject of an ongoing SEC lawsuit and several class actions—not a good look for an investment vehicle the SEC was already unsure about.
In August, three judges in the U.S. Court of Appeals for the District of Colombia ordered the SEC to re-review a spot BTC ETF bid from Grayscale—which describes itself as “the world’s leading crypto asset manager by assets under management”—after the firm sued the regulator following its initial rejection.
The SEC denied Grayscale’s proposed spot BTC ETF in June 2022 on the basis that it was not satisfied the product was sufficiently designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest—factors necessary for the SEC to grant the Securities Exchange Act rule change that would enable the listing of the ETF.
As of November this year, it was reported that the SEC had made contact with Grayscale regarding the reapplication for its proposed spot BTC ETF. The precise deadline for the SEC to issue its decision on the renewed Grayscale application is unclear, as is the direction that decision would go.
The SEC is still considering certain applications, but thus far, the regulator has not approved any spot digital asset ETF. Fake news price swings and accusations of manipulation will only strengthen the regulator’s resolve to delay indefinitely the entrance of this new product into a market it already mistrusts.
Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.
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