21 Jun 2023

Blackrock files for BTC ETF

We explore BlackRock's ETF filing, the timing of the filing, potential implications, and how Q1, 2024 is shaping up to become a monumental quarter.
Source: K33 Research *The iShares deadlines will be established after iShares’ filing gets published for comments in the Federal Register. The current iShares deadlines are thus preliminary and will be corrected in due course.

In Short

BlackRock's ETF filing could receive its final verdict in late February 2024, coinciding neatly with the BTC halving of March 2024.
On Thursday, the world’s largest asset manager Blackrock shook the market after filing for a spot bitcoin ETF (iShares Bitcoin Trust). BlackRock intends to use Coinbase as a custodian while teaming up with Nasdaq in a surveillance-sharing agreement with an unnamed crypto exchange. Filings of U.S. BTC spot ETFs have been plentiful since 2013, and all have been denied. However, never have a company of the degree of Blackrock made such a step, leading an optimistic sentiment to erupt in the market. This is big news for bitcoin after a lengthy period of negative headlines. BlackRock has close ties with U.S. regulators and Democrat politicians, and the recent push may contribute to neutralizing the current U.S. political backlash vs. crypto. BlackRock also has a remarkable approval track record for its ETF filings, having seen 575 out of 576 ETF filings being approved. This noteworthy stat gives room for a more optimistic outlook on the approval odds. It’s also worth noting that BlackRock would not dedicate time and resources to this filing if they did not view the probability of long-term strength from BTC, and thus strong inflows, as substantially high. An approval would profoundly impact the market structure of bitcoin, as it would reduce the barriers for financial advisors to offer exposure to BTC through an accessible investment vehicle with daily creations and redemptions delivered by a trusted issuer.

Why file now?

The crypto industry is currently facing severe regulatory backlash, trading deeply below the peaks of 2021, while the current hands-on approach by the SEC has caused a standstill in terms of institutional activity in the market. At a glance, the timing seems odd. Nonetheless, there are multiple caveats to the timing of the filing.
  1. The first mover advantage. The launch of ProShares BITO clearly illustrated the perks of being first to market. BITO saw inflows amounting to $1bn two days after launching, and to this day, BITO has a market share of 93% among the futures-based long BTC ETFs. We’re already seeing multiple participants re-filing their ETF applications following the BlackRock iShares filing.
  2. The Grayscale vs. SEC lawsuit. A final verdict on Grayscale’s lawsuit against the SEC could come in the next few months. The core of Grayscale’s complaint is that the SEC acted capriciously and arbitrarily in approving futures-based ETFs while disapproving spot ETFs. The SEC was scrutinized in the D.C. court hearing, leading to enhanced expectations of a favorable Grayscale outcome. A Grayscale victory could reflect well on active ETF filings, albeit there is a chance that the SEC will find a way to moderate its arguments to disapprove the current filings. The final verdict is expected 3-6 months after the hearing. The hearing occurred on March 7, so a ruling could be near. With the recent BlackRock filing, all market participants should prepare for substantial volatility as the verdict is published.

Q1, 2024 momentum could be fierce

ETF filings under the 1933 Act umbrella follow a tedious schedule. Theoretically, a decision can be made within four time intervals, depending on when the ETF filing enters the Federal Register. The decision process happens in a schema of anchored decision dates. After the filing is published in the Federal Register, the SEC has 45 days to approve, deny or postpone the ETF. Similar inflection points occur 45 days later, 90 days later, and 60 days later. In sum, a decision has to be made 240 days after the SEC acknowledges the filing. Below, we have illustrated this process and assumed that the iShares registration reaches the Federal Register on June 28. The timeline also contains ARK 21Shares ongoing filing ahead of BlackRock in the queue, potentially benefitting from the BlackRock momentum. We also illustrate the current estimated BTC halving date of March 25, 2024, highlighting that Q1 2024 is gearing up to see substantial narrative-led momentum.
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