In the dynamic world of cryptocurrencies, the BlackRock’s recent hint towards launching a Bitcoin Exchange-Traded Fund (ETF) in the United States has sparked a wave of excitement. This anticipation is fueled by a significant surge in Bitcoin’s value, the world’s largest digital currency, which has bounced back from weeks of stagnation with a 20% leap.
Wall Street Meets Cryptocurrency
Bitcoin, a decentralized virtual currency, was initially conceived as a rebellion against traditional financial systems. However, its recent resurgence is backed by the most influential players on Wall Street, namely BlackRock, the world’s largest asset manager.
BlackRock’s application for a prospective spot Bitcoin ETF on June 15 has been a catalyst for Bitcoin’s rebound, notwithstanding the U.S. Securities and Exchange Commission’s (SEC) history of denying similar applications. The prospect of a Bitcoin ETF has invigorated the crypto market, offering investors the opportunity to engage with Bitcoin on a regulated U.S. stock exchange without the need for custody.
Bitcoin’s Growing Market Share
Bitcoin’s dominance in the cryptocurrency market has been on the rise. According to data from CoinMarketCap.com, it now comprises nearly half of the $1.1 trillion overall crypto market, the highest in over two years. At the beginning of the year, Bitcoin’s market share was around 40%, an increase from a low of 34% in 2018.
Mikkel Morch, chairman at ARK36 digital asset investment fund, believes that BlackRock’s ETF filing is a testament to Bitcoin’s growing acceptance and interest from global market leaders. This development has certainly piqued the interest of institutional investors and traders.
BlackRock’s Strong ETF Approval Track Record
BlackRock’s successful history of obtaining SEC approval for ETFs adds to the optimism of crypto enthusiasts. Although it’s their first foray into a crypto-related ETF, the company boasts an impressive 575-1 approval rate, according to Andrew Bond, an analyst at Rosenblatt Securities.
Following BlackRock’s filing, other asset management firms like Invesco and WisdomTree have also reapplied for spot Bitcoin ETFs, after their previous applications were rejected by the SEC.
However, the SEC’s recent lawsuit against major crypto exchanges, Coinbase and Binance, for allegedly breaching securities laws has cast a shadow over the crypto market.
The Uncertainty and Excitement
Despite the buzz, not all investors are ready to dive into the crypto pool. Rick Meckler, a partner at Cherry Lane Investments, expressed concerns over the unclear regulatory landscape for cryptocurrencies.
“Equities and bonds have clear rules, but the regulations for cryptocurrencies are far from certain. This makes it challenging for many to consider it as an investment class,” said Meckler.
Figure 1: Reuters Graphics
The Current State of Bitcoin ETF
At present, American investors seeking exposure to cryptocurrencies on stock exchanges are limited to futures-based ETFs. These funds track Bitcoin futures contracts and bear the extra costs of rolling over contracts on settlement days.
According to Morningstar data, the total return for ProShares’ Bitcoin Strategy ETF is approximately 79%, slightly behind Bitcoin’s 82% surge. Bryan Armour, director of passive strategies research for North America at Morningstar, suggests that a spot Bitcoin ETF could offer a more cost-effective way for investors to trade.
“Crypto ETF holders are not predominantly institutional – the assets are rather spread out,” he further added.
Crypto Investment Products: A Nascent Market
Crypto investment products currently form a minuscule portion of the overall market. Excluding grantor trusts such as the Grayscale Bitcoin Trust, which is limited to accredited investors, the present crypto ETF market totals about $2 billion, less than 2% of the overall crypto market, according to MorningStar Direct.
BITO, the first Bitcoin futures ETF, swiftly reached $1 billion in market capitalization after its launch in 2021, paving the way for other futures ETF launches.
Investor Sentiment Towards Crypto ETF
A survey conducted by TrackInsight, J.P. Morgan Asset Management, and State Street revealed that almost 48% of the 549 international professional investors surveyed would consider investing in single-cryptocurrency exchange-traded products, compared to 37% who preferred to invest directly.
David Wells, CEO of Enclave Markets, argued that BlackRock’s interest in the retail market is just as strong as its interest in the institutional market.
“They might begin with institutions but potentially hope that Bitcoin becomes an option for investors’ retirement portfolios. The BlackRock brand might be a strong enough incentive to buy, and that’s a big draw for retail investors,” said Wells.
Conclusion
As we wait for the SEC’s decision on BlackRock’s Bitcoin ETF application, the anticipation continues to generate waves in the crypto market. If approved, BlackRock’s strong market position in the world of money management could create a unique set of circumstances for Bitcoin and the broader crypto asset class.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
