Why the BlackRock Bitcoin spot ETF matters

By Zain Jaffer

In June 2023, news reports stated that BlackRock, the world’s largest investment fund, applied to set up a Bitcoin Exchange Traded Fund (ETF) with the US Securities and Exchange Commission (SEC).¹ Coinbase, the US largest centralized crypto exchange, would be appointed as the custodian of the Bitcoin while NASDAQ would be chartered to monitor the trading and price movements.

Who is BlackRock?

BlackRock is said to be the world's largest asset management fund, with US$9.1Tn in assets under management as of March 31, 2023. It has a very successful track record in putting together ETFs for many clients, as it has a large force of investment professionals who push their products to clients for a commission.

They are notable for also putting together the world’s first gold spot ETF which helped drive the price of gold to new record highs in the past.²

What can BlackRock do for Bitcoin?

Pundits believe that the entry of BlackRock into the Bitcoin ETF space will certainly bode well for Bitcoin spot price appreciation in the coming months and years once approved. As of mid July 2023, Bitcoin spot price was hovering in the $30,000 range.

It is important to note that BlackRock CEO Larry Fink actually began as a Bitcoin skeptic, once calling it “an index of money laundering.”³ Now with this recent move, Fink now calls Bitcoin “digital gold,” an international asset that is better than the precious metal he says it improves on.⁴

Notable competitors could include Fidelity, the giant investment firm famous for handling retirement funds, which is rumored to be in talks to acquire the Greyscale Bitcoin Trust.[5]⁵ Greyscale had earlier applied but failed to get approval from the SEC for their own Bitcoin spot ETF. There are also others like Ark Invest, Wisdom Tree, and other interested parties who wish to set up their own Bitcoin spot ETF.

What are Exchange Traded Funds (ETFs)?

Most corporate treasury managers, pension and retirement funds, sovereign wealth funds, and other institutions are not really allowed by their corporate boards to purchase Bitcoin or other crypto. However, if the Bitcoin (or crypto) is owned by what is called an Exchange Traded Fund (ETF), they will be allowed to buy it.

This is because these ETFs are managed by investment fund managers who comply with the regulations set forth by the SEC and other regulators. Reports are issued regularly, and everything needs to be transparent.

That is where an ETF, whether from BlackRock or Fidelity, could be valuable.

The situation right now with Bitcoin ETFs

All the SEC has approved so far are Bitcoin futures ETFs, which are basically derivatives of the spot price action. The SEC rationale is that at present, Bitcoin and crypto spot markets are easily manipulated and front-run. However if that is the rationale, then why approve the derivative of a manipulated Bitcoin spot price. The reasoning is not quite logical.⁶

Both BlackRock and Fidelity ETFs, if approved by the SEC, will definitely be bullish for Bitcoin as it opens up more buyers for this digital commodity. Right now as of June 2023 the liquidity (amount of money) in the crypto markets have kept it in the $1Tn space for both Bitcoin and all other altcoins, including Ethereum.⁷

What is at stake

Take note that Boomer retirees, corporate treasury and pension fund managers and the like won’t invest in Bitcoin and crypto in its present form right now, with all the scams, regulatory uncertainties, and scandals. We’re talking about several trillion dollars worth of money that hasn’t touched crypto and blockchain so far. Corporate treasury and pension funds for example are not really inclined to buy actual Bitcoin.

But if the SEC approves a Bitcoin spot ETF from an established giant with a track record, then that’s a good seal of approval that investment advisors can use to pitch something that their clients can hold. Institutional investors can then be allowed by their corporate boards to hold Bitcoin indirectly, through that SEC approved ETF.

No one knows exactly how the future will play out, but if the US SEC does approve a spot Bitcoin ETF, we could see the forecasts of $100,000 or even $1,000,000 Bitcoin come true, as the supply is fixed.⁸ Most likely if that happens, institutional and accredited investors, company treasuries, pension funds, and even sovereign wealth funds may beat the door to acquire this long misunderstood asset.

Author Bio

Zain Jaffer is an accomplished entrepreneur and investor who started his first company at the age of 14. He is the CEO of Zain Ventures, an investment firm with more than $100 million in assets under management. Zain Ventures invests in a range of initiatives including commercial real estate, technology start-ups and private equity.

References

1 https://www.reuters.com/business/finance/blackrock-close-filing-bitcoin-etf-coindesk-2023-06-15/

2 https://www.blackrock.com/ch/individual/en/products/261149/ishares-gold-ch-fund

3 https://www.cnbc.com/2017/10/13/blackrock-ceo-larry-fink-calls-bitcoin-an-index-of-money-laundering.html

4 https://finance.yahoo.com/news/blackrock-boss-larry-fink-praises-204714666.html

5 https://twitter.com/WhaleChart/status/1670676003931168770

6 sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-20117343-268614.pdf

7 www.coinmarketcap.com

8 https://www.forbes.com/sites/billybambrough/2022/11/26/1-million-by-2030-stunning-bitcoin-price-prediction-revealed/

Photo credits: Unsplash