Adding to the flurry of events in the crypto industry, BlackRock (BLK +0.00%), the world's largest asset manager, filed for a Bitcoin exchange-traded fund (ETF) last week.
BlackRock's application sent shockwaves through the industry, amplified not only by its prominence in the global economy but also by the timing, coming just days after the Securities and Exchange Commission (SEC) filed lawsuits against major players like Coinbase Global and Binance. Regardless of the timing, if BlackRock successfully enters the Bitcoin market, it has the potential to serve as a catalyst for a Bitcoin boon.
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Benefits of a spot ETF
The history of Bitcoin ETFs is lackluster. Today, there are no true Bitcoin ETFs on the market. Instead, there are a handful of trusts that try to track the token's price through future contracts.
Historically, these products have struggled to accurately track the price due to their reliance on speculative futures contracts, resulting in deviations. As a result, trusts often trade at a premium or discount since they lack the ability to directly purchase Bitcoin. For example, the prominent Bitcoin Trust from Grayscale currently trades at a 40% discount compared to the crypto's actual price.
But the proposed BlackRock Bitcoin ETF will remedy this problem, since it possesses characteristics more similar to a spot ETF, which unlike existing Bitcoin-based products on the market, will allow BlackRock to purchase or sell bitcoins at the end of each trading day to ensure that it accurately represents the true price of the token.
A near-spotless record
For years, Grayscale and other notable firms like Fidelity, VanEck, and Ark Investment have submitted Bitcoin ETF applications, only to be consistently rejected by the SEC. Since the first application in 2013, numerous proposals have been turned down due to concerns over market manipulation, lack of regulation, and fraud risks in the Bitcoin market.
But the chances of approval for BlackRock's application appear extremely promising, given the firm's ability to get ETFs approved. With an impressive record of 575-1 in favor of approval, and a history of meeting market demand for its products, BlackRock has demonstrated a remarkable ability to navigate the regulatory landscape.
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Key Data Points
Not only would BlackRock's Bitcoin ETF more closely resemble a true spot ETF, but it also looks to have hammered out solutions to the SEC's concerns over investor protection. The application states there will be added surveillance with the help of Nasdaq that will track customer identification and market trading data.
BlackRock has also partnered with Coinbase to serve as the custodian of the actual bitcoins purchased, which will add greater levels of protection for investors.
Crunching the numbers
To understand the magnitude of this approval's potential impact on Bitcoin's price, let's delve into the numbers. BlackRock has a massive portfolio totaling $9 trillion, bigger than the gross domestic product of most countries.
About 11% of Bitcoin's current supply is sitting on exchanges representing roughly 2.2 million coins. Based on today's prices, that equates to around $66 billion worth of Bitcoin.
From BlackRock's perspective, $66 billion is measly. Yet if just 0.7% of BlackRock's assets were allocated to Bitcoin, it would be enough to absorb all the coins currently available on exchanges.
This is a hypothetical scenario, of course, but it helps us truly grasp the immense significance and capital that could be eagerly waiting to flood into the Bitcoin market if the ETF is approved. The introduction of a more accurate Bitcoin ETF to the stock market has the potential to unleash a wave of adoption for the crypto like never before. There is plenty of evidence of institutional investors wanting to dive into Bitcoin, but the lack of suitable investment products has left their appetite unsatisfied.
The potential influx of institutional investors could create an unprecedented level of demand, propelling Bitcoin's price to new heights and reshaping the dynamics of the entire market. It could have a profound impact on the future of Bitcoin and the crypto industry as a whole.
