BlackRock’s Bitcoin-Based ETF Would Be a Big Deal
A lot of people get caught up in the semantics, as with anything online. This proposed fund is an ETF, but it is also a trust. It seems odd, but at the top of BlackRock’s S-1 filing is the name of this proposed fund: iShares Bitcoin Trust.
As Bloomberg’s Eric Balchunas pointed out in a tweet, the SPDR Gold Shares ($GLD) ETF works exactly as described. It is actually a trust that acts as an ETF. If the iShares Bitcoin Trust were authorized and operated with daily creations or redemptions, it would look and behave like an ETF. What does it matter if the “trust” is technically correct?
Grayscale Bitcoin Trust, a publicly traded Bitcoin instrument from Grayscale, is causing some confusion in the market. GBTC is a bitcoin holding company and shares are available over the counter to participate in the bitcoin price. There is cause for concern as GBTC shares are trading at a significant discount to their net asset value.
According to Grayscale, the market price of a GBTC share is in plain language $13.40, even though bitcoins per share on June 15 were 23, 00 US dollars. 2023.
This is bad for several reasons. BlackRock’s ETF is a trust, but it shouldn’t be able to be. In fact, the interesting discussion about this technically trust, but essentially an ETF, is how this will affect exchanges and paper Bitcoin.
Trading bitcoins above cap
Binance’s fee-free bitcoin trading program was scrapped earlier this year, and FTX went under in November. Binance’s news is likely to be understood, but documents from FTX show that the bankruptcy team failed to locate almost all of the bitcoins owed by the exchange. Who knows how much bitcoin was “paper bitcoins” or IOUs?
The bear market has deterred many market participants.
This market illiquidity leads to volatile price fluctuations. If the iShares fund is approved and BlackRock enters the Bitcoin market, there is a high chance that any liquidity issues will be resolved. It cannot be overstated how much attention a BlackRock bitcoin ETF will attract. BlackRock is one of the largest wealth managers in the world. It would confer at least some semblance of legitimacy, and that semblance should fetch a lot of money.
I see two things that could increase Bitcoin’s value.
Exchanges need to be careful. Investors who want to invest in Bitcoin but don’t really care about its cool features (e.g. usage) will try to pay the lowest possible amount for it. Why would an investor pay a 1% conversion fee when an ETF is available for a fraction of the price?
Second, will the launch of BlackRock’s spot ETF accelerate the growth of paper bitcoin with its fixed supply? The Bitcoin protocol states that only a limited amount of bitcoins can exist. However, the financial markets do not agree. Financial markets are capable of creating exotic financial instruments that can represent anything, including bitcoin.
What prevents the market from being impacted by massive speculation in the derivatives market causing the effective supply of Bitcoin to exceed its limited cap? Possibly nothing.
