BlackRock Seeks SEC Approval for Bitcoin Trust ETF

By Jesse Psota - 6/15/2023

BlackRock, the world’s largest asset manager, has filed an application with the U.S. Securities and Exchange Commission (SEC) to offer a Bitcoin trust ETF that would track the spot price of the cryptocurrency. The iShares Bitcoin Trust, if approved, would be the first of its kind in the U.S. and could open the door for more mainstream adoption of Bitcoin and other digital assets.

What is a Bitcoin Trust ETF?

A Bitcoin trust ETF is an exchange-traded fund that holds Bitcoin directly and allows investors to buy and sell shares of the fund on a stock exchange. Unlike a Bitcoin futures ETF, which tracks the price of Bitcoin futures contracts that expire at a certain date, a Bitcoin trust ETF would reflect the current or spot price of Bitcoin at any given time.

A Bitcoin trust ETF would offer several benefits to investors, such as:

• Lower fees and expenses than other Bitcoin investment vehicles, such as the Grayscale Bitcoin Trust (GBTC), which charges a 2% annual fee.

• Higher liquidity and accessibility than buying and storing Bitcoin directly, which requires a digital wallet and a secure platform.

• Greater transparency and regulatory oversight than unregulated crypto exchanges, which are prone to hacks, fraud, and manipulation.

• Potential tax advantages over selling Bitcoin directly, which may incur capital gains taxes.

Why is BlackRock’s Application Significant?

BlackRock’s application for a Bitcoin trust ETF is significant for several reasons.

First, BlackRock is the largest asset manager in the world, with over $9 trillion in assets under management. The firm runs iShares, the largest U.S. family of ETFs, with nearly $4 trillion in assets under management. BlackRock’s reputation and expertise could lend credibility and legitimacy to the Bitcoin trust ETF and attract more institutional and retail investors to the crypto space.

Second, BlackRock’s application is different from previous ones that have been rejected by the SEC over the past several years. The SEC has been reluctant to approve a Bitcoin trust ETF due to concerns over market manipulation, fraud, custody, valuation, liquidity, and

investor protection. However, BlackRock’s application includes a “surveillance-sharing” clause that would involve Coinbase, one of the largest and most regulated crypto exchanges in the U.S., monitoring and reporting possible illegal activity on its platform. This clause could address some of the SEC’s worries and set a precedent for future applications.

Third, BlackRock’s application has sparked a new wave of optimism and competition in the crypto industry, as several other prominent players have followed suit and filed or updated their own applications for a Bitcoin trust ETF. These include firms like Invesco, Wisdom Tree, Bitwise, Fidelity, ARK Invest, and Valkyrie. The SEC has formally accepted BlackRock’s application for review and added it to its official docket on July 151. The application will be published in the Federal Register and trigger a 21-day public comment period. The SEC will then have 45 days to approve or reject the application or extend the review period for up to 240 days.

What are the Implications for the Crypto Market?

The approval of a Bitcoin trust ETF by the SEC could have significant implications for the crypto market. It could boost the demand and price of Bitcoin by creating a new avenue for investors to gain exposure to the cryptocurrency without having to deal with its technical complexities and risks. It could also increase the liquidity and efficiency of the Bitcoin market by reducing the premium or discount between different platforms and products. Moreover, it could enhance the innovation and diversity of the crypto ecosystem by encouraging more development and adoption of other digital assets and technologies.

However, there are also some potential challenges and drawbacks that a Bitcoin trust ETF could face. For instance, it could increase the volatility and correlation of Bitcoin with other financial markets by making it more susceptible to external shocks and events. It could also face operational and regulatory hurdles such as hacking, theft, loss, or seizure of Bitcoins held by the fund or its custodian. Additionally, it could face competition from other existing or emerging crypto investment vehicles that may offer lower costs or higher returns.

Conclusion

BlackRock’s application for a Bitcoin trust ETF is a milestone for the crypto industry and a sign of its growing maturity and acceptance by mainstream investors. While there is no guarantee that the SEC will approve it or any other similar application in the near future, there is reason to be hopeful that the U.S. will finally join other countries like Canada and Brazil that have already launched their own Bitcoin trust ETFs. If that happens, it could mark a new era for the crypto market and its participants.