BlackRock Bitcoin ETF - Good or bad for crypto?
- 5 minute read
✔️ BlackRock is a huge investment fund with more than $10,000 billion in their portfolio.
✔️ Bitcoin has a market cap of about $500 billion.
✔️ BlackRock wants to launch a Bitcoin ETF, but the SEC is stopping it.
✔️ In the short term, there could be a big rebound in the crypto market if BlackRock enters it.
✔️ Over the long term, market manipulation by BlackRock may occur.
✔️ Crypto and blockchain need time to mature first.
BlackRock has been in the news more often lately for wanting to get into the crypto market. In fact, this huge investment fund is already in this market through crypto mining companies and their trading platform Aladdin, which is a portfolio management tool that you can also store Bitcoin in.
The difference this time is that they want to start an ETF (exchange traded fund). The SEC (US Securities and Exchange Commission) has put a stop to this for now, but BlackRock's intentions are clear. They want to participate in the crypto market and in particular enable investing in Bitcoin (BTC) through BlackRock.
Table of Contents
- What is BlackRock?
- Bitcoin ETF BlackRock
- The SEC check
- BlackRock ETF: is it good news or bad news?
- Conclusion
BlackRock is the largest investment fund in the world. They manage more than 10,000 billion euros for investors and companies from all over the world. So you could say they have very deep pockets.
Their goal is logical: to maximize profits for their clients. Given their size, they succeed very well at that.
What is BlackRock?
The name BlackRock was made up in 1992, but the company started in 1988 in the US with eight people in a single room with Larry Fink, their current CEO, among others, in the ranks. In the early days, they had $2.7 billion under management.
They soon became successful, so more companies were confident to place their funds under their guard, such as Chrysler and General Electric.
By 1994, they had 52 billion under management. In 1996, they also started their hedge funds. In 1999, they marketed shares as listed funds and managed 165 billion. In 2003, they hired Berkowitz as hedge fund manager.
By 2011, they were sitting on a pile of money of 500 billion and by 2014 they were already managing 4 000 billion, even more than the world's biggest bank, a Chinese bank. At the time of writing, they are sitting on a money hoard of around $10,000 billion. It is fair to say that they are swimming in money over there.
They exploit every opportunity to make more money and are all over the world, watching every opportunity. Right now, they have their eye on crypto, and Bitcoin in particular.
Bitcoin ETF BlackRock
First, let me explain what an exchange-traded fund (ETF) is. You can compare it to an index tracker. Now, of course, you also want to know what an index tracker is. You'll always see. People have become so demanding.
OK then. An index tracker was invented because many mutual funds did worse than the average. You have these expensive blue collars sitting there and they can't even beat a monkey throwing darts!
An index tracker is structured in such a way that it pays out the average return of all funds in an index (e.g. the AEX) minus fees. I won't go into the whole story about swaps and the like , that goes too far for this story. In any case, the outcome is insured via a swap agreement, so the payout is assured with a third party.
A big advantage of an ETF is that a computer does all the work, so management costs are minimal.
So BlackRock, the world's largest asset manager, wants to open an ETF for the Bitcoin market. They themselves call it iShares Bitcoin Trust with Coinbase Custody as manager.
An investor can then invest and get the average return over a certain period of time of the underlying asset, Bitcoin. This allows a lot of money to flow into the crypto market.
So it is not, if all goes well, that BlackRock is going to buy up all the Bitcoins and then manipulate the market, because they are big enough! They are going to manage an ETF, or index tracker, for the Bitcoin market for their clients, if the SEC, which watches over US securities, agrees.
However, the financial markets are good at pumping up virtual assets. Before you know it, there are not 21 million, but 5 billion virtual Bitcoins traded! They rename it and give it a lick of paint and sell it as a financial product. Fortunately, there are still agencies keeping an eye on things. The Wall Street shuffle is still on hold for a while!
The SEC check
Ho, ho, not so fast, it won't go like that, cried the SEC. You know them, those whiners who always have something to moan about whether something is a security or whether there might be market manipulation. This US regulator does have considerable influence.
In this case, however, I can certainly relate to this. After all, talk is cheap. They may say they are only investing for their clients, but what's stopping them from putting a few hundred billion dollars directly into Bitcoin in a spot Bitcoin ETF and effectively take over this market.
In the case of XRP, they have got much of the crypto community against them. Yet the SEC is not always the enemy. In this case a financial regulator is needed.
Surely, a spot ETF is a bit different from a futures contract, not investing directly in Bitcoin.
Just imagine BlackRock putting 5% of its portfolio into Bitcoin. That's more than all Bitcoins put together! Well they will surely not be interested in buying all Bitcoins, but if they throw in 1% of their bag, 100 billion. This seems enough to make the Bitcoin chart dance to their tune. Easy money! Do the Bitcoin shuffle.
They can then buy 4 million BTC in a short time and drive the price up. When the price is high enough to grab their usual percentage, they dump their bag again. Then they buy in 4.25 million and repeat the trick. Yes, I quite understand the SEC's point. The effects of these moves can be very effective! Next thing you know, you might as well call Bitcoin BlackRock coin.
BlackRock ETF: is it good news or bad news?
Let's not forget that the crypto market is still very young and immature. There is not enough liquidity in it to withstand huge portfolios of BlackRock, pension funds, institutional investors and other superpowers from the traditional financial world. Many people are fine with them staying out for a while until crypto is big enough.
If a player like BlackRock enters the market, Bitcoin will certainly be able to rise substantially within a short time. However, what's to stop BlackRock from applying a simple trick like the one mentioned above and pretty much becoming the sole ruler of Bitcoin in a short time?
This style of play not only affects Bitcoin, but also altcoins. The bear and bull market could then end and we would get a very even market, with only minor differences. BlackRock could even start influencing Bitcoin's mining process, as they determine how much Bitcoin is worth. They can then force the miners out of the market through price manipulation.
Many people see a Bitcoin ETF from BlackRock as a good thing. Surely the price will go up? This is likely to be true, temporarily. In the long run, however, BlackRock's influence may become too great. But then it will be too late.
The entry of big investors from the financial sector can only be a positive development when the total market cap of cryptocurrencies is substantially larger than the total portfolio of any fund, if you ask me. The risk of market manipulation is too high otherwise. Still saving up, then.
Conclusion
I think these kinds of big investors and financial institutions should be kept out of the crypto market for the time being, so they don't get in the way of the market maturing.
Cryptocurrency and blockchain are technologies with great potential, and it would be a disgrace if big investors jeopardise their future. So the stock market watchdog SEC has made the right choice, as far as I am concerned.
BlackRock is just too big for such a relatively small market. Even if all kinds of rules were to be introduced to stop manipulation with the digital currency, I expect that a powerful company with such brilliant employees will find a way to do so anyway.
Only when Bitcoin has a market cap of $5000 billion or more can one start thinking about allowing these kinds of Juggernauts. Then we will be talking about Bitcoin being worth a sloppy $250,000 each.
So I advocate protecting the crypto market until there is enough in the pot to virtually rule out market manipulation.