Will the launch of BlackRock’s Bitcoin ETF affect the price of the cryptocurrency?
One of the largest investment companies in the world, BlackRock, is about to launch an exchange traded fund (ETF) for bitcoin. This is an important move for the market due to the reach of BlackRock, and also because the fund will allow investors to buy bitcoin in the form of ETF shares from a regular brokerage account. RBC Crypto.
IN application, filed with the US Securities and Exchange Commission (SEC), the company asked for permission to sell the currency through a mechanism called the iShares Bitcoin Trust. This will be a spot fund, that is, when buying its shares, the actual purchase of coins on the market will be carried out. In addition, it will make it easier for institutional investors, including pension funds, to own cryptocurrencies. As of the end of March, BlackRock had over $9 trillion under management.
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 a potentially critical factor as the SEC has so far refused to allow Bitcoin ETFs, citing market manipulation concerns. The storage of the underlying bitcoin as a custodian will be carried out by the second largest crypto exchange Coinbase. Despite the sensational SEC lawsuit against the exchange, the regulator’s accusations have nothing to do with its bitcoin storage service Coinbase Custody.
Until now, there is no simple and legal way to invest in bitcoin in the form of traditional stocks. This is seen as a barrier to large financial institutions, which have legal restrictions on what assets they can hold on behalf of clients. The most well-known solution for buying bitcoin in the form of shares is currently provided by the Grayscale Bitcoin Trust. However, the fund is not listed on the first tier stock exchanges, and Grayscale charges a management fee of around 2% per year, compared to 0.5% for traditional ETFs.
BlackRock is not the first to try to launch a Bitcoin spot ETF, with the Winklevoss twin brothers making the first attempts back in 2014. Grayscale and a number of funds also applied for permission but were denied by the SEC. In total, more than 30 attempts have been made to create a spot exchange-traded fund for bitcoin, but all applications have faced opposition from regulators who cited market problems and lack of investor protection.
grayscale suing with the SEC because of the denial, and the decision in the case is due to be published as early as this year. Last year, the SEC approved a cryptocurrency ETF, but only for the futures markets. This is a much more complex and expensive product for investors. After the news about BlackRock, rumors began to appear on social networks that Fidelity could announce its own Bitcoin ETF, probably through the purchase of Grayscale.
Impact on prices
BlackRock’s rhetoric regarding the first cryptocurrency has changed. Back in 2017, the head of the company, Larry Fink, called bitcoin a “money laundering index,” but a year later, he allowed the launch of an ETF, subject to the legalization of cryptocurrencies. Later in 2021, he said that Bitcoin could become a store of value. At the same time, the company acquired shares in large public mining companies and, on behalf of clients, conducted several transactions in cryptocurrency futures on the CME exchange.
In 2022, BlackRock began managing a reserve fund of around $24.7 billion for Circle, the issuer of the second-largest stablecoin USD Coin (USDC), by capitalization. The company also announced a partnership with Coinbase to provide institutional investors with access to cryptocurrency through one of its subsidiary services. . At the same time, BlackRock announced the creation of a closed bitcoin trust for institutionals, but this story did not develop. The announcement page has been removed from site companies, but available for viewing at the Internet Archive.
In March, the SEC for the third time rejected VanEck’s bid for a spot bitcoin ETF. In January, the regulator for the second time refused the issuer of cryptocurrency exchange-traded funds 21Shares and the investment company ARK Investment Management in creating a similar fund.
Last August, the head of the ARK, Cathy Wood, in one of video for clients suggested that the entry of large investment companies into the cryptosphere could significantly increase the price of bitcoin. According to her, usually companies that want to invest in cryptocurrencies allocate about 2.5% of their portfolio to them. In the case of BlackRock, this amount could be about $1 trillion, which, according to her calculations, could lead to at least a twofold increase in the price of BTC.
Moreover, given that there are only about 3 million truly liquid bitcoins on the market, she believes that with $1 trillion in demand, such an increase in the rate is not the limit. Wood is known for multiple purchases of millions of dollars worth of Coinbase (COIN) shares, and is likely betting on their growth, including through the exchange’s partnership with BlackRock if the ETF is approved.
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