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The Scoop

BlackRock’s Bitcoin ETF application is the ‘holy grail’ of exposure for TradFi, says analyst

Fri Jun 23 2023

BlackRock Bitcoin ETF Proposal

00:00 - 07:15

  • BlackRock has filed a Bitcoin ETF proposal, which is surprising because it happened quickly.
  • The proposed ETF is structured as a trust, not an open-end fund.
  • This structure would unlock capital from IRAs and 401Ks.
  • GBTC has the same underlying structure as this proposed ETF but lacks exemptions to reg M regulations.
  • This proposed ETF would be the holy grail of Bitcoin exposure in traditional finance markets.
  • Other large players that can't touch spot could invest in this proposed ETF.

Futures ETFs and Market Surveillance

06:58 - 13:24

  • Futures ETFs have done better than expected, but there is still a little bit of erosion from the content go.
  • If Bitcoin goes into a massive bull market and the curve steepens, futures ETFs aren't going to track as well over the long term.
  • BlackRock's working with NASDAQ on some sort of market surveillance.
  • The SEC had beef with no proper cross-exchange market surveillance on spot venues.
  • They could approve futures-based ETFs because there's market surveillance of CME and other US-based exchanges that trade crypto derivatives.
  • There's no cross-market surveillance for Coinbase, Kraken, etc.
  • The SEC wants regulated spot or surveillance sharing agreements with a regulated spark market of significant size in order to approve a spot Bitcoin ETF.
  • In this case, they're going to do a surveillance share in green between NASDAQ and this spot exchange (most likely Coinbase).

SEC and Market of Significant Size

13:00 - 20:10

  • The CME is considered a market of significant size by the SEC because it's the only regulated market for Bitcoin futures in the US.
  • The SEC can move the goalposts on what they consider to be a market of significant size, but if other products with smaller underlying assets have been approved, then they won't have a leg to stand on.
  • Coinbase has a significant share of the US dollar market and this could potentially help Bitwise get approved.
  • Grayscale is suing the SEC for not treating their application like situations alike. They point out that over 500 of their ETFs have been approved while only one was denied.
  • BlackRock may know something about the SEC wavering or they may just be taking advantage of their spot trading market surveillance sharing agreement between NASDAQ, Coinbase, and BlackRock to give themselves an edge.
  • Even if all else fails, there's still a benefit to getting approved and getting out the door quickly due to high interest from investors.

CleanSpark and BlackRock Denial

19:47 - 26:29

  • CleanSpark is a NASDAQ-listed company that mines Bitcoin using low-carbon energy and cares about the communities where their data centers are located.
  • BlackRock yanked when everyone was yinging, and they were the last denial before Van Eck and Arc reapplied for crypto ETFs in Europe.
  • Nicey doesn't have the surveillance sharing agreement with Coinbase, so other exchanges will figure out something once Nasdaq gets it.
  • The SEC has to delay, deny or approve within 240 days of receiving a 19 before application. If they approve in the first 45-day period, does that court case become irrelevant?
  • A decision on grayscale is expected by the end of Q3 2021.
  • Once BlackRock's filing hits the NASDAQ website, there's a week or two before the SEC puts it up on their site. Then they have a 45-day period to approve, delay or deny.

Expected Timeframe and Grayscale

26:00 - 32:43

  • Expected timeframe for the SEC registration of the Bitcoin ETF is early August, with a 45-50 day waiting period after it hits the SEC website.
  • Rumors about Fidelity acquiring Grayscale have been circulating, but it may not be viable as Fidelity already has a business.
  • If the Bitcoin ETF doesn't get approval, Grayscale will have to cut their fees or face more outflows. This could drastically reduce their valuation.
  • Grayscale plans to convert to an ETF as soon as possible and cut their fees when they do so.
  • Grayscale's reputation has been hurt by high fees and the discount on their shares, but they were the first company to get crypto on traditional financial rails.
  • The courts and people will eventually figure out a way for Grayscale to stop collecting that 2% fee in perpetuity if people sell out of their trust.

Personal Notes

32:25 - 32:57

  • The speaker has been off the last few days to help his girlfriend move.
  • The news happened at a bad time for him as he has a lot going on in his personal life.
  • He was planning on getting more sleep but couldn't due to the news.