BlackRock spot Bitcoin ETF application: a rocky way towards approval

In the past years BlackRock has continuously pushed the boundaries of ETF offerings, reaffirming its position as a leading force in the financial industry.

In this blog a number of questions will be answered, such as the  involvement of BlackRock in Bitcoin, why BlackRock is bullish on Bitcoin, what is a spot Bitcoin ETF, what are the benefits and what the drawbacks, what is the chance that the SEC will approve this application and if so what would that mean for the crypto markets.

Blackrock and Bitcoin involvement

The distinguishing factor of BlackRock’s application is its stature as the world’s largest asset manager, with almost $10 trillion in assets under management. For that reason some analysts expect that the application of Blackrock will be approved, though not everybody agrees.

Next to that Blackrock is very much involved in the crypto market especially Bitcoin. BlackRock’s investment in Bitcoin mining companies has positioned the asset manager as the second-largest investor in the industry, just behind Fidelity Investments. This move is a testament to the growing acceptance and interest from traditional financial institutions as well as regulators in the cryptocurrency space.

BlackRock’s Bitcoin holdings are significant for several reasons. First, they show that the asset manager is bullish on Bitcoin because of its innovation and resilience as a technology and network. This despite the volatility and regulatory uncertainty surrounding the crypto market, Second, they indicate that BlackRock is diversifying its portfolio with alternative assets that have high growth potential and low correlation with traditional markets. Third, they signal that BlackRock is positioning itself as a leader in the digital asset space, as it has also launched several exchange-traded funds (ETFs) that track companies involved in blockchain and cryptocurrency. Fourth, BlackRock believes that it has a unique value proposition as a store of value, a hedge against inflation, an alternative asset class, and an innovative technology.

Blackrock spot Bitcoin ETF application

BlackRock thrilled the crypto community when it applied at the American Securities and Exchange Commission (SEC) to launch Bitcoin spot exchange-traded fund (ETF) on 15 June to track the spot price of Bitcoin.

Blackrock chairman Larry Fink said he wished to make it easier and cheaper for investors to invest in Bitcoin. Similar products to BlackRock’s application were already launched in other countries, including Canada, Brazil and Dubai.  A second important step was the announcement of a partnership between Blackrock and crypto exchange Coinbase, providing institutional investors access to Bitcoin through Coinbase Custody Trust Company as the custodian. This partnership enables enabling investors to trade in Bitcoin with Blackrock’s Aladdin, the portfolio- and risk management platform of the company, offering institutional investors a trusted entry point with BlackRock’s involvement. Coinbase will monitor and at the same time serve as custodian, ensuring market integrity and overseeing potential market manipulation. By doing so both companies make a bridge between the crypto world and the traditional financial system (TradFi).

What is a spot Bitcoin ETF?

Whereas the Securities and Exchange Commission (SEC) has approved several Bitcoin exchange-traded funds (ETFs), spot Bitcoin ETFs are of a different order. Contrary to the futures ETF, where the price is based on future contracts a spot Bitcoin ETF directly follows the actual rate of the Bitcoin on the market.

A spot Bitcoin ETF provides investors with exposure to the real-time price movements of Bitcoin in the underlying market. This kind of ETF offers  a direct and transparent way for investors to gain exposure to the Bitcoin price.

A spot Bitcoin ETF would directly hold and track the (spot) price of actual Bitcoins, which is the current price of bitcoin at any given moment, as opposed to ETFs tracking the price of bitcoin futures contracts, a number of which have received US regulatory approval.

A spot Bitcoin ETF investment vehicle would allow institutional and individual traders to gain exposure Bitcoin without the need to actually by and store or manage actual Bitcoins themselves. It  would give institutional investors access to Bitcoin without being confronted with complex store problems.

First Reactions on the crypto market  

The announcement of BlackRock’s desire to initiate a bitcoin ETF and expectations of an approval  by the SEC has had a positive effect on the crypto markets, leading to a swift recovery from recent Bitcoin losses.   The Blackrock action triggered the interest of institutional investors, bringing more money of these investors to the market for Bitcoins and other cryptocurrencies. But there was optimism showcased by retail investors as well. This was mainly because of the anticipation of the demand that would be generated [by the launch].   As a result BlackRock’s application had had a “very positive” impact on bitcoin ETF flows and the price of Bitcoin. This caused the Bitcoin rate to increase to a 12-months high beyond $ 30.000, a 80% rise since the start of this year, while also boosting the price of Ethereum, Ripple and other major cryptocurrencies.   European crypto-related exchange traded products also have seen a boost in flows after BlackRock applied to launch a bitcoin fund in the US. Europe-domiciled ETPs with crypto-related names had net inflows of €150mn in June, Morningstar data shows. This followed a similar trend globally, with inflows totalling $610mn (€560mn) in June and July, according to CoinShares data.

Apllications by other asset managers

At the same time the Blackrock application sparked a flurry of similar applications for such a product at the SEC from other asset manager firms in the US. These include names like Fidelity, Invesco, WisdomTree, Bitwise, Wise Origin, VanEck, and Galaxy, while others have refiled their earlier applications to address the SEC’s concerns. This could further strengthen the case for a spot bitcoin ETF.

Potential Drawbacks

But there is also a flipside. As long as there is no approval investors should be aware of potential drawbacks. These may include regulatory hurdles, and uncertain ETF approval timelines.

The SEC’s history of rejecting spot Bitcoin ETF applications, with over 30 rejections, may raise concerns as to whether they will accept BlackRock’s spot ETF. A spot Bitcoin ETF could also give traditional finance firms more control over the cryptocurrency space, harming the network’s decentralised nature and original purpose of blockchain. This may raise debates over the benefits behind BlackRock’s ETF introduction.

Bitcoin ETFs and the SEC

Until now, the SEC has given the green light to several bitcoin ETFs and other crypto exchange-traded funds. However, these have only been funds monitoring cryptocurrency futures or owning shares in companies with indirect crypto exposure. But spot Bitcoin ETF’s are another storey.

The US SEC has stated to accept Blackrock’s Spot Bitcoin ETF. This however does not mean it would approve this application. It only means that the SEC just will handle the application. This should be seen as the  first step towards a possible launch of the Spot Bitcoin ETF.

What may we expect from the SEC?

While there are already spot-Bitcoin ETF’s amongst others in Canada and Europe, a spot Bitcoin ETF does not yet exist in the US. Up till now the SEC is hesitating to approve such a product and called market manipulation one of their worries. Despite the SEC’s history of rejecting spot Bitcoin ETF applications, there is growing confidence among market analysts that BlackRock’s ETF application could be approved within the next six months.

Mike Novogratz, chief executive of crypto financial services company Galaxy Digital, said it is not a question of “if” but “when” the U.S. Securities and Exchange Commission (SEC) will approve at least one of a handful of ETF applications.  ETF manager Cathy Wood called on the SEC to approve all spot Bitcoin ETF applications simultaneously.

“The SEC’s actions related to bitcoin ETFs should be done in a fair and orderly manner.” “I think the SEC, if it’s going to approve a Bitcoin ETF, will approve more than one at once.” Cathy Wood

 

What may a SEC approval bring to the market?

BlackRock’s decision to file for a bitcoin ETF may mark a significant moment in the evolution of the cryptocurrency market. If the BlackRock spot Bitcoin ETF will be approved we may experience a number of  beneficial ripple effects to impact the Bitcoin market.

A SEC’s positive decision will undoubtedly have far-reaching implications for the market and could potentially shape the future of cryptocurrency investments.

More institutional investors
If the SEC would approve Blackrock’s application that would trigger more institutional investors to bring money to the market for Bitcoin and other cryptocurrencies in a more structural way, legitimizing the Bitcoin market and providing a secure and regulated entry point for investors..

The approval of a spot Bitcoin ETF by the SEC could significantly enhance mainstream acceptance of Bitcoin investing, making it more accessible, thereby providing an easier way for traditional investors to invest in Bitcoin without the need for digital wallets or cryptocurrency exchanges, making it more accessible. This streamlined investment process would attract other investors ranging from those curious about cryptocurrencies to seasoned investors seeking a more straightforward way to access the bitcoin market.

It could trigger a wave of similar products in the market and could lend a new level of legitimacy to the Bitcoin market. A spot Bitcoin ETF could also unveil new types of investment opportunities, such as short-selling, where investors can bet against Bitcoin. This could add another dimension to Bitcoin investing and open up additional ways for investors to profit from the cryptocurrency market.

Price surge of Bitcoin and other cryptocurrencies 

A spot bitcoin ETF in the U.S. would as a result have a “material positive impact” on bitcoin’s price as well as that of other crypto currencies. Thanks to the expected growing interest of institutional and other investors this may trigger a firm price surge of Bitcoin and other cryptocurrencies. Some are expecting a rise of more than 400 percent and will go beyond the $ 150.000 barrier.

According to Research institute Fundstrat the possible launch of a Bitcoin Exchange-Traded Fund (ETF) by could have a significant impact on the Bitcoin rate, and may rise to somewhere between 140.000 en 180.000 dollar. Much will depend within which period the SEC come with its decision.

Waiting to a SEC decision: what are the chances?

BlackRock’s recent proposal for a spot Bitcoin ETF has sparked fresh discussions and speculation about the probability of such an ETF becoming a reality. Though a decision was expected in the first half of August the SEC will certainly extend the term. The real deadline, including all possible extensions, is 23 February 2024.

So we still have to wait some time to the final decision of the SEC. Yet, the road to approval is fraught with challenges, and the outcomes of this endeavour remain uncertain.  This path to launching a spot Bitcoin ETF will likely be riddled with regulatory obstacles and opposition.

It is thereby important to note that the approval process for ETFs can be lengthy, and the SEC may request additional information or make further evaluations before making a final decision. The SEC will carefully evaluate the application on the basis of regulation and security measures.

But what are the chances for Blackrock to get approval?

Although similar applications in the past have been rejected, the growing influence of big financial players like BlackRock could increase the chances on approval. The credibility behind BlackRock’s experience in ETFs and its position as the world’s largest asset manager, carries significant weight and credibility in the financial industry.

The SEC might view BlackRock’s involvement as a sign of maturity and institutional acceptance of cryptocurrencies, which could positively influence the approval decision.

It is clear that the approval of such an ETF could validate Bitcoin as a legitimate investment, while it may bring more approved Bitcoin spot ETFs to the market with a very positive impact on the Bitcoin and other cryptocurrencies.

Its endorsement of Bitcoin could encourage more institutional investors to allocate a portion of their portfolios to the digital asset, as well as pave the way for more regulatory clarity and innovation in the crypto space. Ultimately it could bring a revolution in the financial world.

But this prospect is at this moment anything but sure.