Fist, and most importantly, it appears a bitcoin ETF is going to be approved in the near term, most likely this coming January. And not only any company is seeking an ETF, Blackrock is seeking an ETF.
What is an ETF and why is it a big deal?
An Exchange-Traded Fund is essentially a way to represent an asset in the form of shares that can be traded like any other stock. Instead of buying oil or gold itself (and storing and managing it), you can buy shares of a quantity of oil and gold that someone else stores and manages.
ETFs are popular because they make it easy to buy and sell something.
The reason this is a big deal is because, right now, it’s not that easy to buy bitcoin, especially if you are an institution with a LOT of money. Like, a pension fund, an endowment, a Fortune 500 company - in order for one of these institutions to buy a sizable amount of bitcoin, there is a long stepwise process that must ultimately figure out who to buy the bitcoin from, in what form will they store it, and who will manage the private keys. It could take a large institution several months to go through all the steps, and the end result is also cumbersome to undo.
Buying shares of an ETF, on the other hand, is trivially easy, capable of execution in one day.
Why is it a big deal that Blackrock is seeking the ETF?
There are many firms seeking ETF approval, but Blackrock stands out because of its size, and the types of clients it has. Blackrock owns ~$10 trillion worth of assets that they sell access to. This means at least two things:
1- Blackrock will soon be buying a lot of bitcoin.
It’s a safe assumption that Blackrock knows that a significant portion of their clients want some access to bitcoin. If they already manage ~$10 Tn, and they foresee something like a 0.1% move into bitcoin, that means Blackrock will need to buy up $100 Bn in bitcoin. This will drive the price… up.
How much? That depends on how much there is to buy. Yes, there are currently over 19 million bitcoin (though ~3 million have been lost), but that doesn’t mean they’re for sale. Roughly 75% of the existing bitcoin supply hasn’t moved in over a year. This signals that most bitcoin holders are like me - they’re ideological. They’re not trying to buy low and sell high. They see bitcoin as generational wealth that they will hold in the family in perpetuity. What will we do with it? Borrow against it, lend it, but never sell it. If bitcoin was largely held by traders looking to make a quick buck, then many would sell to Blackrock as the price jumps.
2- Bitcoin has become mainstream.
Blackrock’s position on Wall Street is mainstream. It isn’t some risky investment bank, or some up-and-coming hedge fund. It is one of the largest financial institutions in the country. If Blackrock starts selling shares of a bitcoin ETF, this is a very strong signal that bitcoin is no longer only for internet junkies and crazy speculators. When pension funds and sovereign wealth funds and high net work grandmas are taking a 1% position in bitcoin, it will definitively not be simply for crime or money laundering.
In 2017 Larry Fink, Blackrock’s CEO, called bitcoin an index of money laundering. Two weeks ago he called it a “flight to quality,” likening bitcoin to govt bonds. I can’t think of a better indicator of bitcoin’s arrival as a legitimate financial asset.
Why am I so confident an ETF is happening?
Because Blackrock just got a ticker symbol, which is formally used to track trades on the stock exchange. This is not a one-off, as several other funds have received ticker symbols as well. And overall, Blackrock has achieved approval for almost every other ETF request it has made.
I’ll stop here for now, and will get to the other things happening in another post. It’s good to be back.