TL;DR Breakdown
- BlackRock’s iShares unit filed an application for the iShares Bitcoin Trust, raising questions about its classification as an ETF or a trust similar to GBTC.
- The iShares Bitcoin Trust functions like an ETF, allowing redemptions, unlike GBTC. It can buy bitcoin to align with its trading price at the end of the day.
- SEC approval is required, and the ongoing court battle with Grayscale may impact the decision. If approved, it would be the first Bitcoin ETF in the US, benefiting Coinbase as the custody and pricing provider.
Description
The recent filing by BlackRock’s iShares unit for creating the iShares Bitcoin Trust has caused some confusion among industry experts regarding the nature of the proposed product. The terminology surrounding Exchange Traded Funds (ETFs) can be complex, and BlackRock’s application has raised questions about whether it is an ETF or a trust similar to the … Read more
The recent filing by BlackRock’s iShares unit for creating the iShares Bitcoin Trust has caused some confusion among industry experts regarding the nature of the proposed product. The terminology surrounding Exchange Traded Funds (ETFs) can be complex, and BlackRock’s application has raised questions about whether it is an ETF or a trust similar to the Grayscale Bitcoin Trust (GBTC). In reality, it is both, highlighting the intricacies of ETF terminology. Noelle Acheson, the editor of Crypto is Macro Now, highlights the complexity of ETF terminology and clarifies that BlackRock’s proposal is technically for trust but one that allows redemptions, making it function similarly to an ETF.
While technically a trust, the iShares product functions similarly to an ETF as it allows for redemptions.
Contrary to the GBTC, which lacks a redemption mechanism, the iShares Bitcoin Trust offers the ability to redeem shares. This critical distinction is often overlooked, as the term “trust” may mislead market participants into assuming it operates like the GBTC. However, the iShares product aligns with an ETF structure, making it more dynamic and flexible. A significant advantage of an ETF over a trust is the ability to buy bitcoin at the end of the trading day, thereby aligning the fund’s assets with its trading price. In contrast, a trust lacks this mechanism, resulting in occasional discrepancies between its market price and underlying assets.
BlackRock’s strategy and regulatory hurdles
To address concerns of market manipulation, BlackRock’s application includes a surveillance-sharing agreement between exchanges. This agreement aims to mitigate potential risks and demonstrates the fund manager’s commitment to ensuring a secure and regulated environment for the ETF.
While BlackRock’s application marks a significant milestone in the pursuit of a Bitcoin ETF, regulatory approval from the U.S. Securities and Exchange Commission (SEC) is still required. The SEC has historically been cautious regarding spot-based ETF applications and has previously rejected Grayscale’s attempts to convert its GBTC into a spot bitcoin ETF.
The SEC’s concerns primarily revolve around the fragmented and unregulated nature of the spot market, which it considers less secure compared to the regulated futures market. The SEC has cited market manipulation as a key worry. However, the ongoing court battle between the SEC and Grayscale over its conversion plans may impact the SEC’s decision on BlackRock’s application.
If the iShares Bitcoin Trust receives regulatory approval, it would mark a significant milestone as the first Bitcoin ETF in the United States. The trust’s listing on the Nasdaq exchange and its daily pricing based on the CF CME Bitcoin Reference Rate further enhance its potential appeal to investors.
Approval of the iShares Bitcoin Trust would not only be a breakthrough for BlackRock but also a positive development for Coinbase, the chosen custody and market pricing provider for the ETF. Coinbase has faced recent challenges, including deposit outflows and a legal action from the SEC, which accused the company of operating an “unlawful exchange.” Regulatory approval for the iShares Bitcoin Trust could restore confidence in Coinbase and bolster its position in the cryptocurrency market.
In summary, BlackRock’s application for a Bitcoin ETF brings both clarity and potential breakthroughs in the ETF landscape. While addressing the complexities of ETF terminology, the iShares Bitcoin Trust’s functionality distinguishes it from the GBTC. However, regulatory approval remains a significant hurdle as the SEC evaluates the proposal in the context of the ongoing court battle with Grayscale. If approved, the iShares Bitcoin Trust could pave the way for increased mainstream adoption of cryptocurrency investments, benefitting both BlackRock and Coinbase in the process.
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