Summary The apex cryptocurrency attracted interest from large institutions applying for exchange-traded funds. A new ETF is being pushed by BlackRock, the world’s largest asset manager, named Coinbase, the nation’s largest cryptocurrency exchange, as its custodian. If approved, BlackRock will bring legitimacy and heavy money inflows to Bitcoin trading. Bitcoin ( BTC-USD ) breached and ended the week above the psychological level of $30,000 per coin on recent developments signaling traditional finance giants' further investment in the largest decentralized token by market cap. Heavyweights Fidelity National Financial ( FNF ) and the Charles Schwab Corporation ( SCHW ), as well as Citadel Securities, one of the largest designated market makers, launched the EDX exchange platform on June 20. BlackRock ( BLK ) already operates a spot Bitcoin private trust, but like EDX, it is for institutional clients only. BlackRock's proposed spot ETF for retail investors will likely be the first to succeed in the US. Eric Balchunas , Senior ETF Analyst at Bloomberg, tweeted BlackRock's 575-1 record of getting ETFs approved by the SEC. Continued adoption and endorsement by major organizations can only drive up demand and BTC prices. BlackRock's proposed spot ETF filed on June 15 is nothing like the Grayscale Bitcoin Trust (GBTC). Investors in the ETF purchase shares which represent ownership in a fund that holds Bitcoin and do not directly own the underlying Bitcoin. Investors in GBTC purchase shares of the trust which represent direct ownership interest in the BTC held by the trust, currently at 0.00090534 BTC per share . GBTC shares trade at a steep discount to their net asset value ((NAV)). That narrowed as of June 23, when a share of GBTC's market value climbed to $19.19 from $17.72 the day before, even though the amount of Bitcoin held per share inched to $27.94. Normally, shares trade at a discount to their NAV during periods of low demand or negative market sentiment. However, the "GBTC discount" deteriorated because the fund doesn't allow redemptions; investors can only sell their shares on secondary markets. Institutions or accredited individuals who have the ability to create and redeem GBTC shares can exploit this discount by buying GBTC shares at a lower price and exchanging them for Bitcoin at the NAV. A normal ETF uses creation and redemption mechanism to prevent its shares from trading at such a huge discount or premium, thus keeping prices in line with the underlying NAV. The Securities and Exchange Commission (SEC) rejected Grayscale's application to convert GBTC into a spot market Bitcoin ETF in June 29 of last year, because, in their analysis on page 83, "the Commission must approve a proposed rule change [to list and trade shares of GBTC] if it finds that the proposed rule change is consistent with the applicable requirements of the Exchange Act-including the requirement... that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices-and it must disapprove the filing if it does not make such a finding." The same day, Grayscale sued the SEC for its arbitrary decisions in continuing to approve Bitcoin futures-based ETFs, while denying all spot Bitcoin ETFs to date. BlackRock's is not like a Bitcoin futures ETF such as ProShares Bitcoin Strategy ETF ( BITO ). BITO holds futures contracts, or agreements to buy or sell Bitcoin at a predetermined price on a future date, so an investor's exposure is to anticipated Bitcoin price movements. Unlike spot ETFs, futures ETFs only trade on the Chicago Mercantile Exchange ( CME ). Bitcoin futures ETFs have been around since 2017. The SEC maintains that even off-exchange manipulation aimed at affecting prices of CME Bitcoin futures would be caught by surveillance. However, the Grayscale representative in the lawsuit claimed that the CME can't prevent fraud and manipulation and thus satisfy the statutory standard, but the SEC found the standard satisfied anyway. Judge Rao seemed to agree that the SEC emphasized "only the regulatory detection of fraud ." Furthermore, the SEC rep contradicted herself with these closing statements: "the key empirical question is whether fraud and manipulation in the spot market impacts CME futures in the same way. And there's just, we don't have conclusive data." "the second prong is about trading in the ETP itself and if it predom - if it predominates, then there is a concern that the fraud and manipulation could be in that, and then you wouldn't see it in the market that you're surveilling because it's not the underlying market, it's trading in the ETP itself." Regardless of which ends on the market first, a spot Bitcoin ETF will offer many benefits, including easy accessibility, through a traditional brokerage account, for individuals who want exposure to Bitcoin without having to directly purchase and store the cryptocurrency themselves. BlackRock ETFs generally offer high liquidity, allowing investors to enter or exit positions quickly and at fair market prices. Investors get a sense of security, knowing that the ETF is regulated like familiar stocks. To conclude, Bitcoin prices will likely continue to rise as the prospects of the ETFs are good. If approved, more investors will have access to crypto investments with much lower risks, notwithstanding the coin's inherent volatility and macro challenges with the continued high inflation and possibility of recession. The International Monetary Fund economists had concluded the practice of completely banning crypto assets " may not be effective in the long run," could make Bitcoin investing available again to those countries. If anything, BlackRock's application is a strong show of support for its partner Coinbase ( COIN ), which could reverse some of the $517 million in outflows from a separate SEC lawsuit alleging the exchanged offered unregistered securities such as Ethereum ( ETH-USD ) to users with its staking service. Thus, several major altcoins fell out of favor, and Bitcoin dominance exceeded 50% for the first time in 2 years on June 19 and is climbing, suggesting it could be investors' crypto of choice. Finally, accumulation of Bitcoin into illiquid wallets also reached a record high of 15.2 million BTC , lowering the supply available for trade on exchanges to 4.1 million BTC. Due to the deflationary nature observed with Bitcoin, where there is an inverse correlation between price and amount in circulation on exchanges, an increase in Bitcoin reserves yet another bullish sign.
