One of the best things about exchange-traded funds (ETFs) has been their ability to democratize asset classes. From gold to esoteric bonds, ETFs have provided retail and institutional investors the ability to add various securities to their portfolios easily and at lower costs.
So, when news broke that BlackRock had made a filing to launch a spot Bitcoin ETF, it set forth an avalanche of speculation and potential.
For investors, BlackRock’s filing could finally bring not only one, but several bitcoin and cryptocurrency ETFs to the market, ending the drama and bringing the asset to the masses, both safely and cost effectively.
A Long Played-Out Drama
While crypto-mania has died down significantly over the last year or so, there are plenty of pundits who still believe in the asset class and decentralized finance. But after the continued legal issues and collapses of brokerages like FTX, Binance, and Celsius, many investors are worried about placing their hard-earned cash into the asset class. There’s a lack of trust in the industry.
So far, the only way to bet on physical bitcoins without owning them directly remains the Grayscale Bitcoin Trust. The fund is technically a closed-ended fund (CEF) and Grayscale has been embroiled with the SEC and its own legal drama over converting the CEF to an ETF.
At the same time, the SEC has continued to jockey and reject spot bitcoin ETF proposals left and right. This has included potential products from Fidelity, CBOE Global Markets, and NYDIG. The key word is ‘spot.’ The SEC hasn’t approved any products tied to the spot market, but has started to approve of futures-tied bitcoin ETFs back in 2021. The ProShares Bitcoin Strategy ETF (BITO) has quickly grown to prominence and assets.
However, futures and spot prices aren’t the same. One is current pricing, the other is looking into the distance. You can often find oil, corn, and gold showing differences in the two, leading to contango and backwardation. Those wanting current exposure still have to buy Bitcoin and other cryptocurrencies directly and deal with the hassles and risks that come with it.
BlackRock Makes a Splash
All of this changed over the summer when ETF pioneer and mega-sized asset manager BlackRock filed for its spot bitcoin application. BlackRock has a ‘near-perfect’ record when it comes to filing for ETFs and remains an innovator in getting esoteric asset classes into the structure. All in all, only one of its proposed funds didn’t get approved.
BlackRock’s iShares Bitcoin Trust will bet directly on spot bitcoin prices and use Coinbase Custody as its custodian. Just like the iShares Gold Trust with spot gold prices, the new bitcoin ETF will hold physical bitcoins on behalf of investors in a digital ‘vault.’
The key difference for BlackRock’s Bitcoin fund comes in a secondary filing. The SEC has continued to raise concerns about investor safety. The cryptocurrency market has long been a place for scams, fraud, and money laundering. BlackRock’s filing seeks to quell many of the SEC’s concerns over investor protection. Through a secondary filing by NASDAQ—where the fund will be traded—there is an added level of security through surveillance that will track customer identification and market trading data. This piece removes much of the problems with security and fraud that the SEC takes issue with.
This factor and BlackRock’s name have increased the approval odds and added a huge level of legitimacy to the asset class. It also unleashed a torrent of new spot bitcoin ETF fillings. Issuers such as WisdomTree, Invesco, Fidelity through Wise Origin, VanEck, Ark Investments Bitwise, and Valkyrie Digital Assets have all made proposals to the SEC and have added the surveillance requirement similar to BlackRock’s ETF.
Still a Twisting Road to Approval
BlackRock’s filing has certainly upped the chances for approval and added a level of security to an otherwise risky asset class. Additionally, a spot-based ETF would provide investors with some wins as well. This includes low cost of ownership and the ability of institutional investors as well as corporations to build positions of size without running afoul of accounting rules.
The question now remains when the approvals will come and who will race ahead in asset gathering. That could come sooner than later.
The SEC has moved several filings into the Federal Register for this month. The new deadlines for Fidelity’s, Invesco’s, and WisdomTree’s spot prices are October 17, while Valkyrie has a date of October 19. This opens up the comment period in which the regulator has up to 240 days to make a final decision. Analysts now predict that the SEC would likely approve multiple filings simultaneously. This would prevent a ‘first-mover’ advantage.
The wrench in the machine would be that some analysts have speculated the SEC won’t approve any spot ETFs until it has the ability to regulate crypto exchanges. Given the failures at FTX and Celsius, the SEC is pushing hard through lawsuits to regulate the industry. This includes recent actions against Coinbase. Without this, even with the surveillance options on funds, bitcoin and other spot cryptocurrency ETFs may be dead in the water.
That means investors wanting digital assets may still need to use futures-based ones, own bitcoin itself outright or use one of the ETFs that bet on stocks within the industry.
Bitcoin & Digital Asset ETFs
These funds were selected based on their exposure to the digital asset environment through equities or futures and their total YTD return, which range from 45% to 99%. They have expenses between 0.65% to 1.20% and have assets under management between $11M to $1.3B.
| Ticker | Name | AUM | YTD Total Ret (%) | Yield (%) | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|---|---|
| BITQ | Bitwise Crypto Industry Innovators ETF | $74.1M | 98.5% | 0% | 0.85% | ETF | Yes |
| BITS | Global X Blockchain & Bitcoin Strategy ETF | $11.5M | 76.3% | 0.9% | 0.65% | ETF | Yes |
| XBTF | VanEck Bitcoin Strategy ETF | $44.5M | 58.3% | 0.3% | 0.83% | ETF | Yes |
| BITO | ProShares Bitcoin Strategy ETF | $883.2M | 58% | 18.9% | 0.95% | ETF | Yes |
| BTF | Valkyrie Bitcoin and Ether Strategy ETF | $30.2M | 55.8% | 0% | 1.20% | ETF | Yes |
| ARKW | ARK Next Generation Internet ETF | $1.26B | 44.7% | 0% | 0.88% | ETF | Yes |
The Bottom Line
Spot bitcoin ETFs have remained in limbo for the better part of a year. But BlackRock’s filing may be just what the sector needs to see a product actually launch. Its surveillance feature could be just what the SEC needs to approve these products. As such, a number of new launches could all happen at once.