Although the money is flowing into Bitcoin and the subsequent price is rising, the critical voices in the community are still multiplying, because ultimately, BlackRock is the enemy. They stand as the king of kings on Wall Street. Bitcoin was supposed to be anti-establishment, decentralised finance, and now most in the community seems to be celebrating the fact that their prized asset is going to be offered and influenced by the largest asset manager on the planet.
What has happened?
In mid-June 2023, news broke the BlackRock, with nearly $10 Trillion under management, has filed for a Bitcoin spot ETF with the US Securities and Exchange Commission (S.E.C.). An ETF or Exchange Traded Fund is a type of investment that tracks a specific asset or commodity, in this case Bitcoin. ETF's can be bought and sold on stock exchanges with the custody of the underlying asset, Bitcoin, being held by the manager of the ETF, in this case BlackRock. This allows for investors to get price exposure to Bitcoin without having to worry about self-custody or figuring out how to use a crypto exchange. This would potentially give traditional investors peace of mind, since they could purchase shares of a Bitcoin spot ETF directly through their familiar brokerage account. Offering the average retail investor, the possibility of high crypto returns but with the ease of traditional trading. This would bring tens, possibly hundreds of millions of people into crypto investing.
BlackRock have had a remarkably high application approval rating with the SEC. In fact, it has only one blemish and the current ratio is 575 to 1. This means when Larry Fink, CEO of BlackRock, applies, he usually gets his way. There are currently 23 other applications from hedge funds and asset managers on Wall Street attempting to gain a Bitcoin spot ETF. There has already been a one accepted in Europe and in Hong Kong and it's likely that by the turn of the year there may well be 50 asset managers offering this type of investment opportunity around the world.
So, what does this mean for crypto?
This is the hardest question of them all. If we were honest, we would probably all agree that we are in crypto for the money. Trading crypto currently offers the largest returns of any investment on the planet. Yes, it's volatile, yes, there's been some fraudulent activity, yes, people have lost money, however, if you study the markets, you understand the utility, and you trade without emotion, purely on the facts, then trading crypto is as close to printing money as you can get, and BlackRock entering means even more money for everyone.
However, for the purists, for the activists, for the people who truly hate Wall Street, that day in mid-June may be one of the darkest in crypto’s history. It’s a morality question for them, they believe this sells out to the man. The thought of a decentralised value of money in Bitcoin, being traded by the largest asset manager on Wall Street under the S.E.C.'s regulations, directly contradicts what Bitcoin and cryptocurrency was created for.
Bitcoin was created to be an asset with value which cannot be infiltrated by inflation, central banks, or governments. Bitcoin was supposed to be a way for people to send money over the Internet, a digital currency that provides an alternative payment system that would operate free of central control but otherwise be used like traditional currencies.
For those purists, this BlackRock intervention is the start of regulation. However, there is a catch 22 to all of this. If those purists ever want to see a $1 million Bitcoin, then they must accept that regulation creates security, which then offers peace of mind to the everyday retail trader, who then purchases Bitcoin, which ultimately drives the price up.
The hardliners don't accept this, however, most reasonable people understand that regulation does need to happen. Nevertheless, with regulation comes authority, which then begs the question ‘which authority regulates the market?’ and ‘will those authorities be country specific?’ Most long-term cryptocurrency traders now accept that crypto may not be decentralised forever. The next step in traditional finance taking a leap into digital finance is believed to be CBDC's or central bank digital currencies.
CBDC’s
Fiat money, Pound Sterling or U.S. dollar for example, is a government issued currency that has no backing from a physical commodity like gold. It is considered a form of legal tender that can be used to exchange for goods and services. Traditionally, fiat money came as banknotes and coins, but technology has allowed governments and financial institutions to supplement physical money with a credit-based model that records balances and transactions digitally.
A CBDC would be a form of digital currency issued by a country's central bank. Similar to cryptocurrencies except their value is fixed by the central bank equivalent to the country’s fiat currency. Many countries are developing CBDC's and some have even implemented them. We are only a decade away from having a dollar or pound CBDC paying for our groceries.
Because a CBDC is not a cryptocurrency you cannot trade it on an exchange and is not a store of wealth capable of rising in value, however, like crypto, it does have the ability to move a value across the world instantaneously without high fees. Exactly the same as Tether and USDC stablecoin cryptos. CBDC’s are important to understand because they are Central Banks acknowledgement that digital finance is the future.
The Argument
Why is the BlackRock Bitcoin spot ETF so important?. Well… Validation. When the world's leading central banks are terrified that their currency is failing and they need a digital version to keep up. Plus the world's largest asset manager is promoting Bitcoin as its flagship offering. This creates validation not only for cryptocurrency but for the idea of digital finance.
BlackRock will be the first US based company granted a Bitcoin spot ETF, most likely in the next 6 months. It will be the first of many, and it will bring in billions and ultimately trillions into the crypto market. As a company that invests in digital finance, we believe that the integration of traditional finance into our sector is a positive. Then having small but certain set of regulations which give consequences to people that want to break the law, and reassurance to traditional investors, all of which can only be a good thing.
Like any argument there are always two sides, both need to be listened to, both need to be understood, and it all depends on which side of the fence you fall to whether you believe BlackRock entering digital finance is a good thing or a bad thing. When BlackRock do offer a Bitcoin spot ETF it will drive the price considerably higher than any analyst predicted this cycle would go. If you aren't a cryptocurrency purist than this is wonderful news, a much higher ROI and a great day had by all. Although, if you're not in it for the money, if you’re passion for cryptocurrency is based on offering the world a new decentralised source of value, BlackRock and Wall Street offering Bitcoin might not be the end, but it's almost certainly the beginning of the end.
Disclaimer - None of what is written on this website is financial advice and only descriptions of how the author trades and for entertainment purposes.
Comments