Wall Street: BlackRock Bitcoin trust impact on crypto market “Bitcoin ETFs”
Wall Street: BlackRock Bitcoin trust impact on crypto market “Bitcoin ETFs“: In a significant turn of events, Bitcoin experienced a substantial rally last Wednesday, surpassing the $30,000 mark. The prevailing belief among market observers is that this surge in Bitcoin’s value is directly linked to the application for a Bitcoin spot ETF filed by renowned institutions such as BlackRock. Analysts have pointed out that BlackRock’s meticulous design of the Bitcoin spot ETF takes into consideration previous rejections of similar applications by the US Securities and Exchange Commission (SEC), increasing the likelihood of approval for this particular proposal.
Experts argue that if BlackRock’s Bitcoin spot ETF is indeed approved, it is expected to exert a major boost on the cryptocurrency market. While the SEC has not disclosed specific details regarding the approval process, the high possibility of the application’s acceptance has generated considerable anticipation.
On June 15, BlackRock submitted its application to the SEC, marking the first attempt at a spot ETF approval by the institution. Notably, BlackRock boasts an impressive record of 575-1 when it comes to obtaining SEC approval for its ETFs. Out of the 576 ETF applications submitted by BlackRock, only one was rejected back in October 2014. With such a remarkable success rate, it is difficult not to hold optimistic expectations for BlackRock’s latest endeavor.
To date, over 30 institutions have made attempts to secure approval for Bitcoin spot products, but all have faced opposition from regulators citing concerns about market stability and investor protection. Supporters of cryptocurrencies have long argued for the availability of such products for trading, with Coinbase emphasizing that the lack of clear regulations in the digital asset industry is undermining the competitive position of the United States in the global economy.
Bitcoin Spot ETFs Face Repeated Rejections
Since the advent of Bitcoin, investors have sought convenient avenues to engage in its trading, and exchange-traded funds (ETFs) have been one such avenue. However, the approval of Bitcoin spot ETFs has faced prolonged scrutiny and regulatory delays.
The fundamental concept behind a Bitcoin Spot ETF is to establish a connection between Bitcoin’s price and traditional financial markets, allowing investors to trade Bitcoin on traditional stock exchanges without needing to directly hold or manage the cryptocurrency. This mechanism is believed to provide investors with a safer and more convenient method of investing in Bitcoin.
Regulators have exhibited caution in granting approval for Bitcoin spot ETFs, and one of the major regulatory bodies overseeing this process is the SEC. Since 2013, the SEC has rejected numerous applications for Bitcoin spot ETFs. One of the primary reasons for these rejections has been concerns related to market manipulation and risk management. The SEC is apprehensive that due to the volatile nature of the Bitcoin market and the potential risks of manipulation, the introduction of a Bitcoin Spot ETF could result in losses for investors.
Rough statistics indicate that since the first Bitcoin spot ETF application was submitted in the United States in 2013, several asset management firms have approached the SEC with proposals for Bitcoin spot ETFs, only to have their applications rejected or postponed.
In July 2017, the Winklevoss brothers submitted an application for a Bitcoin spot ETF, which was subsequently rejected by the SEC. The regulator cited the lack of regulatory oversight in the Bitcoin market and highlighted concerns about potential market manipulation.
In September 2019, asset management company VanEck and blockchain technology firm SolidX jointly filed an application for a Bitcoin spot ETF. The SEC rejected this application, asserting that the applicants had failed to demonstrate sufficient measures in the Bitcoin market to prevent fraud and manipulation.
In October 2019, Bitwise Asset Management submitted its application for a Bitcoin spot ETF, which met the same fate at the hands of the SEC. The regulatory body stated that the applicant had not provided compelling evidence supporting their claim that the Bitcoin market has sufficient safeguards against market manipulation.
Interestingly, Bitcoin spot ETFs are already tradable in countries outside the United States, such as Canada and Brazil. In February 2021, Purpose Investments’ Purpose Bitcoin ETF became the first Bitcoin spot ETF in North America when it listed on the Toronto Stock Exchange. Similarly, on June 23, 2021, QR Capital launched Latin America’s inaugural Bitcoin spot ETF on the Brazilian Stock Exchange.
Is Approval for the New Application Likely?
Changing the SEC’s stance will undoubtedly prove challenging, but there are reasons for cautious optimism. BlackRock’s proposal shares similarities with previous ones in that it aims to establish a trust that holds Bitcoin and allows for the creation and redemption of shares in exchange for Bitcoin, akin to the functioning of ETFs for physical commodities like gold.
As per the SEC filing, BlackRock has applied for the iShares Bitcoin Trust, with Coinbase Global Inc., the largest US cryptocurrency exchange, acting as the custodian. If approved, this trust will be traded on Nasdaq.
Despite the official clarification that the application pertains to a trust product, the cryptocurrency industry has experienced significant debate and divergence of opinions regarding its classification. Some assert that BlackRock’s application differs from Grayscale’s GBTC, as it offers greater flexibility and redemption options. Others view it as a trust fund, an alternative structured ETF that represents publicly traded Bitcoin Trust shares. While it differs from financial instruments like GBTC, it bears resemblance to other ETFs managed by GLD and BlackRock’s iShares.
Anthony Pompliano, co-founder of Morgan Creek Digital, pointed out on Twitter that BlackRock’s application is not for a Bitcoin ETF but for a Bitcoin trust. Although there are technical distinctions between the two in terms of regulation and approval processes, the end result for investors is similar. Pompliano also suggested that if approved, this product could compel GBTC to introduce daily redemptions and reduce fees to stay competitive. Moreover, many Wall Street firms may swiftly follow suit and launch competing products to challenge BlackRock’s entry into the market.
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One noteworthy aspect of BlackRock‘s filing is the mention of oversight-sharing agreements on page 36 of its 19b-4 filing. BlackRock states that it intends to establish such agreements with operators of Nasdaq and Bitcoin spot trading platforms, with the aim of mitigating the risk of market manipulation. These oversight-sharing agreements enable exchanges to share information about market transactions, settlements, and customer identities. Consequently, exchanges gain access to confidential information related to buyers, sellers, and prices, substantially reducing the possibility of market manipulation.
Wall Street: BlackRock Bitcoin trust impact on crypto market “Bitcoin ETFs”
Graeme Moore, head of tokenization at the Polymesh Association, remarked that BlackRock’s proposed surveillance sharing protocol, called the “Spot BTC SSA,” sets this application apart and enhances its chances of approval.
Market manipulation concerns surrounding spot Bitcoin prices have been a significant factor in the SEC’s rejections of previous Bitcoin ETF applications. The involvement of Coinbase in the oversight-sharing agreement is noteworthy since Coinbase serves as one of the exchanges for the CME CF Bitcoin reference rate, which BlackRock’s ETF will rely on.
The ultimate decision of whether BlackRock’s filing will persuade the SEC to change its stance remains uncertain. Apart from the futures versus spot issue, the evaluation of market size and adequacy of regulation are open questions for regulators.
However, if approval is granted, the struggling crypto industry would experience a significant impact. Once BlackRock’s quasi-spot ETF receives the green light, other ETFs could adopt similar mechanisms. If an exchange successfully secures approval to list a spot Bitcoin ETF, the subsequent process is often more streamlined for other exchanges.
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Epilogue
As expected, after BlackRock’s application, several institutions have resubmitted ETF proposals.
Asset management firm WisdomTree has resubmitted its application for a Bitcoin spot ETF, Invesco has resubmitted a 19b-4 document for a Bitcoin spot ETF, and cryptocurrency fund company Valkyrie has also submitted an S-1 registration for a Bitcoin spot ETF to the US Securities and Exchange Commission.
While it remains unclear whether the SEC will ultimately allow Bitcoin spot ETFs, BlackRock’s move seems to have injected fresh vitality into the crypto industry. Institutional investors are once again showing interest in Bitcoin, and this ripple effect is spreading within the circle.
Outside the United States, HSBC in Hong Kong has begun permitting its customers to trade in cryptocurrency ETFs listed on the Hong Kong Stock Exchange. The butterfly effect triggered by BlackRock’s actions is gaining momentum.
If the application is approved, a wave of Bitcoin spot ETF proposals will follow, bringing increased attention and liquidity to the cryptocurrency market. This could serve as a much-needed confidence boost for the market.
