In the U.S., major investment funds claim to act as intermediaries between crypto investors of all sizes and the crypto market. This should be carried out through exchange-traded funds (ETFs).
The news about BlackRock applying for a spot Bitcoin ETF, the iShares Bitcoin Trust, was the first sign in this regard. How does that work? Simply put, BlackRock buys BTC and then issues shares of its ETF, the value of which is tied to the current (spot) price of BTC in a certain way. BTC in BlackRock accounts act as financial collateral for the shares. In theory, this is an opportunity for investors to put their money into the first cryptocurrency using traditional market instruments. But in practice, the investor doesn’t get BTC, they receive a derivative of sorts, i.e., a derivative financial instrument managed by BlackRock.
Here are a few details to outline the situation:
- The Securities and Exchange Commission (SEC) approves applications to launch ETFs.
- Applications for spot Bitcoin ETFs have been filed before, but they have all been rejected by the regulator. The first one was rejected back in March 2017, filed by cryptocurrency exchange Gemini.
- Applications for Bitcoin ETFs from Fidelity, ARK Invest, Galaxy Digital, Bitwise, VanEck, NYDIG, SkyBridge, and Grayscale are currently rejected or pending. Representatives of the latter even sued the regulator for rejecting the application, but the suit wasn’t granted.
So, how is BlackRock’s application different from similar applications filed before?
- BlackRock is one of the world’s largest investment firms, with $8.59 trillion in assets under management as of the end of 2022. The entire crypto market cap today barely exceeds $1 billion, and it barely reached $3 billion at its peak.
- BlackRock engaged Coinbase Custody to hold BTC used to back the ETF.
- The ETF application was filed almost immediately after the start of the SEC’s litigation against Binance and Coinbase, the largest crypto exchanges in the United States.
So, the current situation stands out for the scale of BlackRock and the SEC’s actions toward the crypto market. The same SEC that will eventually review BlackRock’s application to launch the ETF. The difference in the regulator’s lawsuits against Binance and Coinbase is also worth noting. The former gets blatantly squeezed out of the U.S. market, while the latter was given almost a month to prove the legitimacy of its activities. Here I can also point out that Coinbase is a licensed public company whose shares are already traded on the Nasdaq exchange, and they have been officially cooperating with BlackRock since August 2022.
Needless to say, the SEC has also cleaned up the cryptocurrency market pretty well by now, and forcing Binance out will be kind of the last straw. After that, the launch of BlackRock’s spot Bitcoin ETF won’t just allow institutional and retail investors access to the first cryptocurrency but will be almost the only relatively easy way to invest in BTC, which eliminates many technical complexities and regulatory and tax uncertainties. Ultimately BlackRock and the other companies that receive approval from the SEC to launch a spot Bitcoin ETF will own BTC. And it’s worth noting that there are many of them. After BlackRock, WisdomTree, Invesco, and Valkyrie Investments submitted new applications to launch Bitcoin ETFs.
Thus, big capital in the U.S. will actually become a mandatory intermediary between a wide range of investors and the first cryptocurrency. This will make it easier for the authorities to control the largest decentralized digital asset, which is BTC, and to tie up some of the dollar mass that would otherwise have to be disposed of through inflation with higher deposit rates. Moreover, people would see BTC as an investment instrument, and that’s where the SEC and CBDCs would come into the picture again. The former — to make cryptocurrencies more difficult to access and discredit them in the public eye, and the latter — as an alternative, but fully controlled by the government or whoever controls the U.S. Fed.
