Lately, the crypto world has been abuzz with news of Blackrock’s supposed launch of a Bitcoin ETF. However, it appears that it’s not an ETF, but rather a trust. While this may seem like a trivial distinction, comprehending the difference is vital. ETFs and trusts are two distinct financial instruments. But before we delve into the specifics of this, let’s understand some fundamental concepts.
What is an ETF?
An Exchange-Traded Fund (ETF) is an investment fund similar to a mutual fund. It usually mirrors a specific index, industry, commodity, or other asset. Unlike mutual funds, ETFs can be bought and sold on a stock exchange just like any ordinary stock. An ETF can hold a vast array of stocks from different sectors, or it could focus on a single sector or industry.
What is a Trust?
Trust, in the context of finance and law, refers to an arrangement where a person’s property or money is legally held or managed by someone else or by an organization for usually a set period of time. In simple words, a trust involves the transfer of property by the owner to another person in whom the owner has confidence for the benefit of a third person. In this context, the iShares Bitcoin Trust holds Bitcoin and issues shares that represent portions of the holdings.
About Blackrock Bitcoin Trust ETF:
BlackRock’s Bitcoin Trust ETF combines these two concepts with the world of cryptocurrencies. It is essentially an ETF that tracks the performance of Bitcoin.
BlackRock, the biggest asset management company globally, submitted an application to the SEC for approval of a spot Bitcoin ETF on June 15, 2023. The company operates iShares, the most extensive family of ETFs in the U.S., managing nearly $4 trillion in assets. The Blackrock Bitcoin Trust ETF aims to offer investors simple, easily tradable funds that would track the real-time price of BTC, not the prices of futures contracts.
This means that it tracks the spot price of Bitcoin, which refers to its current price at any given moment.
The confusion might seem trivial since Blackrock, a major player in finance, is still investing in Bitcoin. However, the crux of the matter lies not in Blackrock’s actions but in our understanding and dissemination of information. Often, people share information without fully comprehending it.
This doesn’t imply that everyone needs to be an expert before sharing information, but accuracy is important. Miscommunication, such as using “ETF” instead of “trust”, can lead to misconceptions about regulatory oversight. For instance, the iShares Bitcoin Trust doesn’t fall under the same regulations as a typical ETF.
Therefore, it’s essential to understand what we’re sharing. The phrase “OMG, Blackrock is launching a Bitcoin ETF!” went viral but was inaccurate. It could have been “Blackrock is launching a Bitcoin Bread Pakora!” for all it mattered.
Regulations for Blackrock Bitcoin Trust ETF:
The regulatory landscape for such financial products is complex and evolving. The Securities and Exchange Commission (SEC) has shown prudence in approving Bitcoin ETFs that aim to mirror the current market price of the cryptocurrency. A few regulations on IBTC briefly surfaced on DTCC’s list, hinting that the SEC might greenlight a spot Bitcoin ETF:
- IBTC briefly appeared on DTCC’s list: This suggested that the SEC might approve a spot Bitcoin ETF, which would allow investors to buy and sell Bitcoin directly through an exchange-traded fund. This boosted the Bitcoin price and the market sentiment in August.
- IBTC was delisted from DTCC’s list on October 24, 2023: This dashed the hopes of a spot Bitcoin ETF approval, as the SEC reportedly had concerns about the surveillance-sharing agreement proposed by BlackRock. This caused the Bitcoin price to drop and the market to react with disappointment. However, it appeared once again on the DTCC website on October 25, 2023.
- Regulatory uncertainty for crypto-based financial instruments: The incident showed how sensitive the crypto market is to regulatory signals, and how unclear the regulatory framework is for crypto-related products. The market experienced volatility and liquidations as a result. In late October 2023, regulators began discussing the readiness of cryptocurrency-based financial instruments. The SEC has until January 10th, 2024 to decide whether to approve a Bitcoin ETF.
In conclusion, the BlackRock Bitcoin Trust ETF is a complex financial product that is subject to a variety of regulations. The SEC has not yet approved a spot Bitcoin ETF, and the regulatory landscape for such products is evolving. The incident in late October 2023 showed how sensitive the crypto market is to regulatory signals, and how unclear the regulatory framework is for crypto-related products.
It is important to understand the difference between ETFs and trusts, as they are two distinct financial instruments with different regulations and risks. ETFs are traded on regulated stock exchanges and track the price of an underlying asset directly, while trusts are traded on over-the-counter markets and are structured as trusts, which means that investors are buying shares in a trust that holds the underlying asset.
Ultimately, the decision of whether or not to invest in the BlackRock Bitcoin Trust ETF is a personal one that should be made after careful consideration of your individual circumstances and investment goals. It is important to do your own research and understand the risks involved before making any investment decisions.