On June 15, 2023, BlackRock, one of the world's leading fund managers with $10 trillion under management, filed an application for a spot Bitcoin ETF with the United States Securities and Exchange Commission.
The request came at the height of the SEC's battle against the crypto sector, just after threatening large US companies such as Coinbase or Kraken.
Over the past 10 years, the SEC has repeatedly denied any Bitcoin spot ETF applications.
However, BlackRock is one of the world's largest financial services companies and a worthy rival to the US agency, with a near-perfect approval record. Its line of ETFs, called iShares, manages assets worth $4 trillion.
In fact, BlackRock's request has encouraged other companies in the sector, such as Fidelity or Ark Investment to present their own Bitcoin spot ETFs.
If the SEC approves the BlackRock ETF, the cryptocurrency markets, and especially Bitcoin, could begin a very rapid recovery.
According to Peter Eberle, president and chief investment officer of Castle Funds: “It would end crypto winter forever.”
What is a Bitcoin Spot ETF?
A Bitcoin spot ETF is a financial instrument that allows users to gain direct exposure to Bitcoin and its price swings, but without having to own the asset directly.
Investors who buy Bitcoin ETFs are, in essence, buying shares or units of the fund that uses Bitcoin as the underlying asset.
The value of the ETF is intended to reflect the performance of Bitcoin, offering investors an alternative method of investing in Bitcoin without having to create and maintain a digital wallet or use cryptocurrency exchanges.
One of its main advantages is that it offers a regulated and well-known investment structure. It allows investors to track changes in the price of Bitcoin within the confines of established financial markets, while also gaining access to the liquidity and transparency of ETFs.
Another advantage is that an ETF contains a basket of Bitcoin and not a single unit, making it a diversified investment, and allows for daily buying and selling of shares.
Differences between a spot and futures ETF
You've probably read that the SEC has given the green light to Bitcoin-based ETFs before. However, these products are so-called “futures ETFs,” which track cryptocurrency futures or are tied to the stock price of companies with indirect exposure to cryptocurrencies.
The Bitcoin Spot ETF is simpler and easier to trade as it is tied directly to the current price of BTC and not futures contracts.
The difference is that spot prices are real-time prices for the asset in question, rather than guesses or predictions about what its price might be later.
Spot prices are used as a reference to price derivative contracts. For example, the spot price of a currency pair, such as the dollar-euro exchange rate, is a reference point for currency hedging.
Why would the SEC approve the BlackRock ETF?
Because BlackRock's iShares Bitcoin Trust is specifically designed to address the concerns that the SEC has cited in all of the applications it has previously rejected.
In particular, it aims to resolve doubts about mechanisms that guarantee that client assets cannot be diverted to unauthorized third parties.
BlackRock appears to have taken note of the problems caused by FTX, as well as the lawsuits filed by the SEC against Kraken and Coinbase (filed a few days before the request), describing in the request itself all the mechanisms it would use to avoid the problems described. by the SEC.
How does BlackRock solve SEC fears?
One of the SEC's main concerns with a spot Bitcoin ETF is the possibility of market manipulation.
BlackRock's application proposes a shared surveillance arrangement that could minimize this risk. Something that most of the companies that have submitted their applications have copied.
Why is it important for the crypto world?
BlackRock's introduction of a spot Bitcoin ETF will have a significant impact on the cryptocurrency sector:
- Increased adoption: BlackRock's participation in the crypto sector will attract more institutional and retail investors, making BTC appreciate as a legitimate investment.
- Price improvement: An ETF offers investors regulated access and the ability to gain exposure without having to purchase the asset. This will increase demand and therefore improve the price.
- Liquidity: A Bitcoin ETF will increase market liquidity and investor participation.
- Volatility: The previous point could bring greater volatility to the crypto market, since a sudden large sale or the entry of large institutions could affect the price of the asset.
- Contagion to the sector: The simple fact that BlackRock filed the application caused the entire crypto market to react upward. Positive news and developments from influential companies foster positive sentiment and as a result investors want to benefit from the bull market.
IMPORTANT: The content of this article is for informational purposes only and, in no case, what is written here should be taken as investment advice or recommendations. Bit2Me News reminds you that before making any investment you should educate yourself and know where you invest your money, as well as the pros and cons of the system. We separate ourselves from the actions and consequences that ignorance may entail. If you decide to invest in this or another asset class, you are solely responsible for the consequences that your decisions and actions may have.
