BlackRock, the world’s largest investment company, has shaken the world by applying for a Bitcoin spot ETF with the US SEC. The $10T asset manager believes that the crypto industry is worthwhile; thus, it has decided to join in a move that has sparked controversy among the crypto community.
While the move looks bullish for Bitcoin, the crypto community wonders if it is good or bad; also, what are the chances for the SEC to approve the filing?
According to a Nasdaq Stock Exchange and the U.S. SEC filing, BlackRock seeks to issue a Bitcoin ETF with Coinbase Custody Trust Company as its Bitcoin holdings custodian. On the other hand, it wants the Bank of New York Mellon (BNY Mellon) to serve as its custodian for fiat reserves.
The asset manager applied with the U.S. SEC on June 15, 2023, to allow it to offer a Bitcoin spot exchange-traded fund. This asset will have an index that tracks the live value of Bitcoin, which will then update its prices every five minutes. The filing notes that the previously approved spot exchange-traded products in the commodities and currency markets stand as generally unregulated, and the SEC relied on the underlying futures market as the basis of approval.
As such, the trust claims that:
“The regulated market of significant size test does not require that the spot bitcoin market be regulated in order for the Commission to approve this proposal.”
BlackRock Bitcoin ETF is not the first Bitcoin or crypto spot ETF application that has landed on the SEC’s desk. The regulator has previously turned down similar crypto ETFs citing that the market is unregulated and highly speculative, making them not a great fit for American ETF investors.
BlackRock has come to try its luck where similar companies like GrayScale failed before. It claims the crypto market does not need to be regulated for the SEC to approve their Bitcoin Spot ETF. But is that it? Grayscale first applied to convert its Bitcoin Trust GBTC into an ETF in 2021. Its ruling faced multiple delays, and the SEC ended up rejecting it on claims that the ETF would be tied too directly to Bitcoin, which is an unregulated and volatile asset.
Soon after, Grayscale filed a petition with the U.S. Court of Appeals for the District of Columbia Circuit. This ongoing litigation is led by Grayscale’s senior legal strategist Donald B. Verrilli Jr., a former U.S. solicitor general, alongside a team of attorneys from Davis Polk & Wardwell law firm.
Regarding the action of the SEC, Verilli said:
“Failing to apply consistent treatment to similar investment vehicles, and is therefore acting arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934.”
Now, BlackRock believes in a similar construct as Grayscale. It says that the SEC should be fair about accepting and passing such assets and is positive that theirs will prevail.
BlackRock’s filing says that its iShares Bitcoin Trust will be traded as Commodity-Based Trust Shares if the SEC approves. An excerpt from the filling reads:
“The Shares have been designed to remove the obstacles represented by the complexities and operational burdens involved in a direct investment in bitcoin.”
Not to forget, BlackRock has already applied for 575 ETFs before with only one getting rejected. As such, the odds tip heavily towards an approval but it’s up to the regulators to decide.
If BlackRock can prove that their Bitcoin ETF will bear lesser risks than direct investment into crypto assets, they will most likely have a chance to get it approved by the SEC. If that happens, what can you expect?
Institutional Bitcoin adoption has been increasing in the past several years. It shows that the asset is one of the most promising investment vehicles. We have seen companies like ARK, Microstrategy, Tether, and Tesla invest in Bitcoin. An interest from BlackRock, the world’s largest investment company, will only stir the pot more and attract new institutional investors.
It will not be a wonder to see investment companies like Vanguard offering their customers crypto ETFs and other services to stay competitive. Such a move is likely as banking companies like JP Morgan also begun their crypto journey by being crypto skeptics, and now it is offering several crypto assets to its customers.
Hong Kong is pressuring banking companies like Standard Chartered and the Bank of China to offer their services to crypto clients in Asia. This development shows that the crypto adoption tide is turning, making it more feasible for new institutional investors to enter the crypto industry.
More crypto derivative assets like ETFs will enter the market if institutional investors join the industry. At the same time, some companies may also choose to invest directly in the cryptos, increasing the prices of major cryptos. However, this doesn’t mean that retail investors will be the key beneficiaries of the mainstream adoption of these assets. The biggest holders of crypto assets will most likely be institutional investors.
Steven Lubka, a Director at Swan Bitcoin, has shared a similar view saying that Bitcoin will attract institutional investors and likely hit the $1M per coin market. However, only a few retail investors might enjoy the price move.
The crypto community has received the news of BlackRock filing for a Bitcoin ETF with mixed reactions. Some, like Galaxy Digital CEO Mike Novogratz, are happy with it, while others are skeptical.
In a June 16 interview, Mike Novogratz said that the BlackRock Bitcoin ETF is “the best thing that could happen to Bitcoin.” He added, “I say a Hail Mary every night that Larry Fink and BlackRock can pull off a Bitcoin ETF.”
Investor Scott Melker, on the other hand, is against the introduction of the Black Rock Bitcoin ETF. He explains that the approval of that particular ETF would be a disservice to crypto-native innovators who have built the industry up since its infancy.
“As good as this may be for institutional adoption of the space, it kind of violates the ethos, it is a bit of a dishonest push away from the people who built the industry in the United States.”
Cardano and Ethereum co-founder Charles Hoskinson hit back at the bitcoin maximalists who are welcoming the BlackRock Bitcoin ETF saying that they are led by greed.
Charles Hoskinson was replying to a series of tweets that were pointing to BlackRock being a potential bad player in the crypto industry. The original quoted tweet was from a user who calls themselves Bitpaine. Bit Paine claims that the sheer political power held by BlackRock may help its ETF to go through.
Bit Paine also called out the SEC for their bad regulatory policies that have sent the market crashing washing out retail traders only for institutional investors to buy in with ‘discounted prices’.
BlackRock is the world’s largest investing firm holding over $10T worth of assets. It has amassed political power in a similar fashion which makes it hard to shut the door on them. As such, it can be expected that their new Bitcoin ETF will get approved by the SEC. In that case, it will usher in a new era of crypto adoptions where the institutions that had left will come swarming back in.
Why is that you may ask? Its because most of the present TradFi institutions do not want to veer off too much from the less risky investment vehicles. However, they wouldn’t want to be left behind in the case of an emergence of a new ‘goldmine’. The goldmine here is crypto and in particular Bitcoin.
More crypto products will flood the market as well as the number of whales will rise. What does this mean to the retail investor or trader you may ask? Retail investors and traders will earn high returns if they hodl their assets for a long time. However, if the market starts rising too fast, weaker hands will be shaken off as they try to “take profit” not knowing the market has changed and it’s no longer business as usual.
However, all these peeks into the future are dependent on the BlackRock ETF going through and becoming a success to attract other TradFi institutions to the crypto industry. Now, since the ETF is yet to be approved, only time will tell if it will be and what its impacts will be. Keep watching Blockmanity for updates on this and other crypto-related developments.
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Disclaimer: Blockmanity is a news portal and does not provide any financial advice. Blockmanity's role is to inform the cryptocurrency and blockchain community about what's going on in this space. Please do your own due diligence before making any investment. Blockmanity won't be responsible for any loss of funds.
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