BlackRock, the largest asset manager globally, has filed an application for the creation of a Bitcoin exchange-traded fund (ETF). This move aims to provide investors with a means to gain exposure to the cryptocurrency. By offering an ETF, BlackRock intends to enable investors to include Bitcoin in their portfolios without having to directly purchase or hold the digital asset.
An ETF is a financial product that trades on stock exchanges, mirroring the performance of an underlying asset or index. In this case, the proposed Bitcoin ETF would track the price of Bitcoin, allowing investors to buy and sell shares representing ownership in the cryptocurrency. This structure provides a convenient and regulated way for traditional investors to participate in the potential returns of Bitcoin.
BlackRock files for a Bitcoin ETF – Why does it matter?
BlackRock is the world’s largest asset manager, with $8.59 trillion in assets under management as of December 31, 2022. The filing by BlackRock represents a significant development for the cryptocurrency industry.
BlackRock’s size and reputation within the financial sector give the Bitcoin ETF application substantial credibility and could potentially pave the way for broader acceptance of cryptocurrencies within traditional investment circles. If approved, the ETF could attract significant institutional and retail investors, leading to increased liquidity and potentially impacting the price of Bitcoin.
BlackRock taps Coinbase as custodian
As per the filing, BlackRock has forged a strategic partnership with leading cryptocurrency exchange Coinbase. As part of this arrangement, Coinbase Custody will serve as the custodian for BlackRock’s digital assets.
The filing comes amid face-off between US SEC and leading crypto firms
The decision to pursue a Bitcoin ETF comes at a time when the cryptocurrency market is experiencing increased regulatory scrutiny, particularly in the United States. Just recently, the US market regulator filed two lawsuits, targeting significant players in the industry. Binance.com, renowned as the world’s largest crypto exchange, along with its related entities and founder Changpeng Zhao, faced the first lawsuit, which was filed on June 5. The very next day, the SEC initiated a second suit, this time directed at Coinbase, another prominent exchange in the crypto sphere.
“The crypto industry got the biggest push of the year when $9 trillion giant Blackrock applied with the US Securities and Exchange Commission to offer a spot Bitcoin exchange-traded fund,” said Shivam Thakral, CEO of BuyUcoin, India’s second longest-running digital asset exchange.
According to Shivam, “Blackrock’s move testifies to the fact that Bitcoin is gaining the attention of leading financial institutions around the globe.”
“It remains to be seen if SEC will approve the application but the digital asset ecosystem has received the much-needed push to enter the next phase of growth and mass adoption,” he added.
Governments and financial authorities around the world have been exploring ways to regulate digital currencies, including Bitcoin, due to concerns over issues such as market manipulation, investor protection, and money laundering. By offering a regulated ETF, BlackRock aims to address some of these concerns and provide investors with a reliable and compliant investment vehicle for Bitcoin.
“BlackRock’s chosen to launch a Bitcoin ETF in the face of regulatory scrutiny shows that it is committed to adopting digital assets and offering alternative investing options. Despite the SEC’s latest actions, BlackRock’s action demonstrates its confidence in the future of digital assets,” said Dhruvil Shah, Vice President-Technology, Liminal a wallet infrastructure & custody solutions platform.
“It also shows its keen interest in institutional investors who looking for regulated exposure to digital currencies by entering the Bitcoin ETF market. This raises the possibility of a change in the way the conventional financial industry views digital assets. However, as the Bitcoin industry develops, regulators must strike a fine balance to support a strong and inclusive financial system.”
SEC has been resistant to spot Bitcoin ETFs
It is important to note that the filing is only the first step in the process, and regulatory approval is required before the Bitcoin ETF can be launched and made available to investors. The Securities and Exchange Commission (SEC) in the United States is responsible for reviewing and approving ETF applications.
The SEC has previously expressed concerns about the volatility and lack of oversight in the cryptocurrency market, leading to the rejection of several Bitcoin ETF proposals in the past.
Last year, the SEC dealt a blow to Grayscale Investment LLC by rejecting its application to convert the renowned Grayscale Bitcoin Trust (GBTC.PK) into an ETF. In response, Grayscale filed a lawsuit against the SEC, arguing that the regulator’s rejection of spot Bitcoin ETF applications seemed arbitrary, particularly considering their prior approval of Bitcoin futures ETFs.
In addition to Grayscale, other prominent firms such as Fidelity, Cboe Global Markets, and NYDIG have also faced rejections from the SEC for their proposals of spot Bitcoin ETFs. The SEC’s repeated denials have created a challenging landscape for those seeking to launch ETFs tied directly to the spot price of Bitcoin.
These developments highlight the regulatory hurdles faced by companies eager to introduce spot Bitcoin ETFs in the United States. While the SEC has approved Bitcoin futures-based ETFs, it has been more cautious and resistant when it comes to granting approval for ETFs based on the actual spot price of Bitcoin.
Noelle Acheson, Former Head of Research at CoinDesk, expresses skepticism regarding the likelihood of the Bitcoin ETF actually receiving approval. Noelle suggests that BlackRock’s filing for the Bitcoin ETF is more about conveying a political message rather than solely seeking approval.
“My take on the BlackRock BTC ETF filing: BIG news – BlackRock is the world’s largest asset manager. It’s not going to happen; BlackRock knows this; Rather, it is sending a political message; Larry Fink is a prominent Democrat.”
What are the chances for approval?
Despite the challenges surrounding the approval of Bitcoin ETFs, there are a couple of reasons that could potentially lead to a favorable outcome for BlackRock’s application. Firstly, BlackRock carries a significant reputation in the financial industry. In the past, the company has displayed a remarkable track record of successfully obtaining approvals for ETFs from the SEC, with a staggering ratio of 575 approvals to just one rejection. This favorable history could work in BlackRock’s favor as it seeks approval for its Bitcoin ETF.
Secondly, it is worth noting that the US SEC itself is currently facing substantial pressure and criticism regarding its approach to cryptocurrencies. This mounting scrutiny compelled Congressman Warren Davidson to introduce a bill that calls for the dismissal of the current SEC Chair, Gary Gensler. The criticism reflects a broader sentiment that the SEC’s regulatory stance towards crypto may be overly cautious or restrictive, hindering innovation and potentially impeding the development of new investment opportunities.
Given these factors, there exists a slim possibility that the combination of BlackRock’s reputable standing and the external pressures faced by the SEC could influence a more favorable outcome for BlackRock’s Bitcoin ETF application.
Overall, BlackRock’s decision to file for a Bitcoin ETF demonstrates the increasing mainstream recognition of cryptocurrencies as an asset class. If approved, the ETF could offer a regulated and accessible avenue for investors to participate in the potential growth and returns of Bitcoin, while also providing an additional layer of legitimacy and oversight to the cryptocurrency market.