Our experts tell how the launch of ETF on Bitcoin by investment giant BlackRock with $9 trillion in assets may affect the global crypto market
One of the world’s largest investment firms, BlackRock, is about to launch an exchange traded fund (ETF) for bitcoin. This is an important step for the market due to BlackRock’s reach. And also because the fund will allow investors to buy Bitcoin as ETF shares from a regular brokerage account.
In a filing with the U.S. Securities and Exchange Commission (SEC), the company asked for permission to sell the currency through a mechanism called the iShares Bitcoin Trust. It will be a spot fund. That is, buying its shares would involve actually buying coins on the market. It will also make it easier for institutional investors, including pension funds, to own cryptocurrency. As of the end of March, BlackRock had more than $9 trillion under management.
Bitcoin Trust and Spot Bitcoin ETF are products that track the real price of Bitcoin. Their point is to give investors access to BTC through a regulated and familiar product. While not actually owning Bitcoin.
Futures-based exchange-traded funds differ from spot funds in that they offer investors access to futures contracts rather than to an asset.
When you buy units of a spot fund, unlike futures products, there is an actual purchase of Bitcoin in the market. If big players show interest in such a product, it may have an impact on the price of the asset.
The document states that the price of the asset on the spot market will be formed based on data from the Nasdaq exchange. This is also potentially critical, as the SEC has so far refused to allow Bitcoin ETFs. In doing so, citing fears of market manipulation. The storage of the underlying Bitcoin as a custodian will be handled by Coinbase, the second largest cryptocurrency exchange. Despite the SEC’s sensational lawsuit against the exchange, the regulator’s charges have nothing to do with its bitcoin storage service Coinbase Custody.
There is still no easy and legal way to invest in Bitcoin in the form of traditional stocks
And it is considered an obstacle for large financial institutions, which by law have restrictions on what assets they can hold on behalf of clients. The best-known solution for buying Bitcoin in the form of stocks is now provided by Grayscale Bitcoin Trust. However, shares of this fund are not allowed to be traded on first-tier stock exchanges. But Grayscale does charge a management fee of about 2% per year. While traditional ETFs have a 0.5% fee.
BlackRock isn’t the first to try to launch a bitcoin spot ETF, the first attempts were made back in 2014 by the Winklevoss twin brothers. Grayscale and a number of funds also asked for permission, but were turned down by the SEC. In all, there have been more than 30 attempts to create a spot exchange-traded fund for bitcoin. But all applications have faced regulatory opposition, citing market problems and a lack of investor protection.
Grayscale is suing the SEC over the rejection, and a decision in the case is due to be released as early as this year. Last year, the SEC approved a cryptocurrency ETF, but only for futures markets. It’s a much more complex and expensive product for investors. After the news about BlackRock, rumors started to appear on social media. That its own Bitcoin ETF could be announced by Fidelity, probably through the purchase of Grayscale.
Attitude of BlackRock towards BTC has been changing and there have been many attempts to open ETF funds
Attitudes of BlackRock towards BTC have been changing. Back in 2017, the head of the company Larry Fink called Bitcoin an “index of money laundering. But a year later, he allowed the launch of ETFs on the condition that cryptocurrencies are legalized. Later in 2021, he said Bitcoin could become a means of saving capital. At the same time, the company bought shares in major publicly traded mining companies. And on behalf of clients, it conducted several trades in cryptocurrency futures on the CME exchange.
In 2022, BlackRock began managing about $24.7 billion in reserve funds for Circle, the issuer of the second most capitalized USD Coin Stablecoin (USDC). The company also announced a partnership with Coinbase. In order to provide institutional investors with access to the cryptocurrency through one of its subsidiary services. At the same time, BlackRock announced the creation of a closed bitcoin trust for institutional investors. However, this story did not develop. The announcement page was removed from the company’s website, but is available to view in the online archive.
In March, the SEC rejected VanEck’s application for a spot Bitcoin ETF for the third time. In January, the regulator rejected cryptocurrency exchange traded fund issuer 21Shares for the second time. As well as investment company ARK Investment Management to create a similar fund.
What will be the impact on the price of ETF on Bitcoin
Last August, the head of ARK, Kathy Wood, suggested in a video for clients that the entry of large investment companies into the cryptosphere could significantly boost Bitcoin. Companies that want to invest in cryptocurrencies typically allocate about 2.5 percent of their portfolio to them, she said. In the case of BlackRock, this amount could be about $1 trillion, which, she estimates, could lead to at least a two-fold increase in the price of BTC.
Our experts say that taking into account the fact that there are only about 3 million really liquid Bitcoins in the market. Then, given the demand for $ 1 trillion, this rate increase is not the limit. Also Kathy Wood is known for repeated purchases of Coinbase (COIN) shares for millions of dollars. And probably bets on their growth, including due to the partnership of the exchange with BlackRock in the case of approval of the ETF.
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