BlackRock, the world’s largest asset manager, has submitted an application to the United States Securities and Exchange Commission (SEC) for the registration of a spot Bitcoin exchange-traded fund (ETF). This highly anticipated move comes as BlackRock seeks to tap into the growing demand for cryptocurrency investment opportunities. But is it a big thing for Bitcoin and the entire cryptocurrency industry? Let’s find out.
BlackRock, which manages more than 10Trillion USD in fund, has filed for spot Bitcoin ETF with the SEC on June 17th, 2023.
Working in collaboration with Coinbase, the largest US cryptocurrency exchange, BlackRock’s Bitcoin ETF aims to leverage Coinbase Custody for secure storage of the digital assets. Additionally, the ETF will rely on Coinbase’s spot market data for accurate pricing information, while BNY Mellon will act as the custodian for the cash component.
The filing of a Bitcoin ETF application by BlackRock represents a significant milestone in the cryptocurrency industry. Registering a spot ETF for Bitcoin with the SEC has been a challenging endeavor, with no such application having received approval to date. The SEC has expressed concerns regarding potential fraud or manipulation within the spot market, leading them to approve Bitcoin ETFs focused on futures trading instead.
Let us know understand, what is an ETF.
What is an ETF?
An ETF, or exchange-traded fund, is an investment product tied to various assets such as currencies, commodities, bonds or stocks. Investors can gain exposure to these assets without the need for direct ownership. In the case of a Bitcoin ETF, investors can invest in Bitcoin’s price movement without holding the cryptocurrency itself, purchasing shares that track the asset’s value.
The SEC’s historical reluctance to approve a Bitcoin ETF for the spot market has been a contentious issue for aspiring applicants. In 2022, Grayscale, an asset manager, had its application for a Bitcoin spot market ETF rejected by the SEC, prompting a subsequent lawsuit from Grayscale.
The potential approval of BlackRock’s Bitcoin ETF would mark a significant breakthrough in the crypto industry, opening the doors for broader participation from institutional investors and providing an avenue for retail investors to gain exposure to Bitcoin in a regulated and accessible manner.
SEC’s Reluctance to Green Light an ETF for the Bitcoin
The SEC has been hesitant to approve a Bitcoin spot market ETF, which has been a source of frustration for potential applicants.
Grayscale, an asset manager, applied for a Bitcoin spot market ETF in 2016, but the SEC rejected it in June 2022, leading to a lawsuit. In March, a federal judge questioned the SEC’s claim that Grayscale’s data was inadequate for assessing the impact of fraud or manipulation on futures markets.
The SEC has also turned down spot Bitcoin ETF proposals from companies like CBOE Global Markets, NYDIG, and Fidelity in the past.
SEC, BlackRock & ETFs
BlackRock has achieved an impressive success rate with its ETF applications to the SEC, with a remarkable 575 approvals and only one rejection.
The U.S. Securities and Exchange Commission (SEC) made contrasting decisions regarding spot Bitcoin ETFs and Bitcoin future-based ETFs. While the SEC has rejected multiple proposals for spot Bitcoin ETFs, it has approved several ETFs based on Bitcoin futures.
In the case of spot Bitcoin ETFs, the SEC has been cautious and has denied over a dozen applications in the 2021-22 alone. Concerns over potential fraud and market manipulation in the spot market have been cited as reasons for the rejections. The SEC’s rigorous standards aim to ensure investor protection and maintain market integrity.
On the other hand, the SEC has shown a willingness to approve Bitcoin future-based ETFs. These ETFs allow investors to gain exposure to Bitcoin’s price movements through futures contracts rather than holding the underlying asset directly. By approving these futures-based ETFs, the SEC aims to provide regulated avenues for investors to participate in the cryptocurrency market.
BlackRock Bitcoin Spot ETF Application: Why is it a Big thing?
The BlackRock Bitcoin ETF application is generating significant attention due to the stature of BlackRock as the world’s largest asset manager and its remarkable track record with ETF approvals in the past.
BlackRock’s sheer size and influence in the financial industry make its foray into the Bitcoin ETF space a significant development. With $9.5 trillion in assets under management in the first quarter of 2023, BlackRock holds tremendous market clout. The company’s involvement in the cryptocurrency market through a Bitcoin ETF has the potential to attract a substantial influx of institutional and retail investors.
BlackRock’s success rate with ETF applications adds weight to the significance of its Bitcoin ETF filing. Out of the numerous ETF applications it has submitted to the SEC, BlackRock boasts an impressive track record of 575 approvals with just a single rejection. This success demonstrates the expertise and credibility BlackRock has built over the years in navigating the regulatory landscape for ETFs.
Given BlackRock’s reputation and track record, the market is keenly observing the outcome of its Bitcoin ETF application. If approved, it would mark a major milestone, providing further validation to the cryptocurrency market and potentially opening the floodgates for institutional investors to gain exposure to Bitcoin through a regulated and accessible vehicle. This could also bring the beginning of the bull market.
How is BlackRock’s Bitcoin ETF different from other ETFs?
BlackRock’s Bitcoin ETF stands out from previous ETFs as it adopts a spot ETF approach, meaning it would directly hold physical Bitcoins in its portfolio. Ajeet Khurana, the Founder and CEO of Reflexical, a crypto advisory firm, highlights that the BlackRock ETF would need to actively purchase the spot BTC, resulting in an increase in demand and a potential decrease in the circulating supply of Bitcoin. This surge in demand is expected to drive up the price of Bitcoin and generate a significant boost in market sentiment.
Additionally, the introduction of a Bitcoin-based spot ETF with a redemption option is anticipated to closely align the fund’s price with the underlying asset class. Minal Thukral, the Executive Vice President of Growth and Strategy at CoinDCX, suggests that this development could attract a greater number of institutional investors to participate in Bitcoin investments, leading to a substantial impact on the cryptocurrency’s price. While it remains premature to fully assess the market impact of BlackRock’s Bitcoin ETF, it has the potential to represent a significant advancement for the overall cryptocurrency industry.
According to Parth Chaturvedi, Investments Lead at CoinSwitch Ventures, BlackRock’s application stands out due to two significant factors. Firstly, the involvement of BlackRock with Coinbase, especially in the current market climate, is seen as a reassuring move that inspires confidence among investors. Secondly, BlackRock aims to address previous concerns related to spot-pricing feeds by adopting the CF Benchmarks Index, which is developed by a UK FCA-regulated firm. Notably, this index is the same benchmark utilized by the CME for settling Bitcoin futures contracts.
How is the market expected to react if BlackRock Bitcoin ETF is approved?
Historically, the cryptocurrency market has exhibited a notably enthusiastic response to positive developments within the industry. A prime example of this was seen when the ProShares Bitcoin Strategy ETF, the first Bitcoin-based ETF, received approval in October 2021. Following the approval, the crypto market experienced a surge of over 10 percent.
Will BlackRock Bitcoin ETF be approved by the SEC?
Although BlackRock holds the title of the world’s largest asset manager and has a strong history of obtaining product approvals, the approval of a spot Bitcoin ETF by the SEC remains uncertain. This uncertainty arises as the SEC has taken legal action against prominent crypto exchanges for allegedly trading unregistered securities and engaging in questionable practices. Therefore, it remains to be seen whether the SEC will grant approval for a spot Bitcoin ETF in light of these ongoing concerns.