BlackRock will launch a bitcoin ETF. How it will affect the cryptocurrency price
The launch of BlackRock's Bitcoin ETF could be a catalyst for the cryptocurrency's price rise
Here's how the launch of an exchange-traded fund from the investment giant with $9 trillion in assets could affect the global cryptocurrency market
One of the world's largest investment firms BlackRock is about to launch an exchange-traded fund (ETF) for bitcoin. It's an important move for the market because of BlackRock's reach, but 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, meaning that buying its shares will involve the actual purchase of coins in 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 ETFs are products that track the real price of bitcoin. Their point is for investors to access BTC through a regulated and familiar product without 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, you are actually buying bitcoin in the market. If big players show interest in such a product, it could have an impact on the price of the asset.
The document states that the price of the asset in 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, citing fears of market manipulation. The second-largest cryptocurrency exchange, Coinbase, will hold the underlying bitcoin as a custodian. 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. This 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 trade on the first-tier stock exchanges, with Grayscale charging a management fee of about 2% per year, while traditional ETFs have a fee of 0.5%.
BlackRock is not the first to try to launch a spot ETF on bitcoin, 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 rejected 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 Fidelity might announce its own bitcoin ETF, probably by buying Grayscale.
The impact on prices
BlackRock's rhetoric regarding the first cryptocurrency has been changing. Back in 2017, head Larry Fink called bitcoin an "index of money laundering," but a year later he was already allowing the launch of an ETF if cryptocurrencies were legalized. Later in 2021, he said bitcoin could become a means of saving capital. At the same time, the company bought shares of large publicly traded mining companies and conducted several transactions in cryptocurrency futures on behalf of clients 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 to provide institutional investors access to cryptocurrency through one of its subsidiary services. At the same time, BlackRock also announced a closed bitcoin trust for institutional investors, but the 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 denied cryptocurrency exchange-traded fund issuer 21Shares and investment firm ARK Investment Management a second time to create a similar fund.
Last August, ARK head Katie Wood suggested in a video for clients that large investment firms entering the crypto sphere 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 can be about $1 trillion, which, she estimates, can lead to at least a two-fold increase in the price of BTC.
Moreover, taking into account that there are about 3 million really liquid bitcoins, she thinks that if there's a demand for $1 trillion, this growth is not the limit. 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 exchange with BlackRock in case of ETF's approval.
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