BlackRock is not only the leading candidate to receive SEC approval to launch the first directly collateralized ETF in BTC in the US market, but it is also a leader in investing in Bitcoin mining companies.
Indeed, it turns out not only that it has invested in four of the five largest publicly traded Bitcoin mining companies, but also that it is the second largest shareholder in all four.
The top five publicly traded Bitcoin mining companies in the world by market capitalization are Riot Blockchain, Marathon Digital Holdings, Cipher Mining, Hut 8 Mining, and TeraWulf. Taken together they capitalize nearly $5.5 billion, and they are all from North America.
Notably, Hut 8 Mining is Canadian, while the other four are from the United States.
BlackRock is reported to have invested in all four US companies, and in each of them has come to be the second largest shareholder.
What’s more, in the top two (the only ones capitalizing more than a billion), Riot Blockchain and Marathon Digital Holdings, BlackRock’s ownership share exceeds 6%.
Bitcoin mining and BlackRock’s influence
Mining is the activity that essentially validates BTC transactions on Bitcoin’s blockchain, and it is remunerated exclusively in BTC.
A block is mined every 10 minutes or so, for which a reward of 6.25 BTC is granted to those who succeed in mining it. This reward halves every year, thanks to so-called halving, and the next one will occur in the spring of 2024.
Thus this is the main activity supporting the Bitcoin network, which is why BlackRock’s interest in it is rather curious.
In fact, BlackRock is the largest asset manager in the world.
The landscape of BlackRock
BlackRock was founded in 1988 in New York, by Larry Fink and associates, with the specific goal of providing traditional financial services to large institutional investors.
Over time it has grown to more than $8.5 trillion in assets under management, with nearly $18 billion in revenues. It has nearly 20,000 employees, and among its subsidiaries is iShares, which deals specifically with ETFs.
Having such a company interested in Bitcoin mining, to the extent that it is itself the world’s largest institutional investor in the sector, is certainly newsworthy, all the more so given its interest in ETFs.
ETFs on Bitcoin
For quite some time now, markets have been expecting the SEC to authorize the launch of ETFs collateralized directly in BTC also in the US.
Indeed, in other parts of the world they have already landed on the markets, even in Europe, while in the US the SEC has so far always refused to approve them, despite numerous requests.
For now, the government agency that oversees exchanges has limited itself to approving ETFs based on futures contracts on the price of Bitcoin, but not collateralized directly in BTC.
The most important difference lies in the fact that issuers and managers of Bitcoin-collateralized ETFs must buy BTC on exchanges in order to have enough tokens in cash to cover the value of all the shares issued, whereas this is not true for ETFs based on futures contracts.
The thing is, not only did BlackRock also apply to issue an ETF on spot Bitcoin in June, but more importantly, the company has an SEC approval rate of more than 99%.
According to many, the odds are high that the SEC will end up approving BlackRock’s application, and if their Bitcoin ETF is successful, it could generate large purchases of BTC in the spot markets to collateralize it.
BlackRock’s interest in Bitcoin and mining
If the initiative of launching an ETF on spot Bitcoin could also be seen merely as an attempt by the US giant to capitalize on the hype around this new asset, investments in crypto mining companies tell a different story.
Surely these are genuine investments in this new technology, and not trivial speculation.
Indeed, it should be noted that both RIOT (Riot Blockchain) and MANA (Marathon Digital Holdings) shares over the past few years have lost heavily on the stock market.
From the highs of 2021, they lost around 95% of their value during last year’s bear-market, only to recover slightly in 2023.
Currently their market prices are at the pre-bubble levels of late 2020, which is when Bitcoin’s price was still well below $30,000 and was only beginning its first climb in history towards this threshold.
Thus, the fact that in 2022 BlackRock did not get rid of these investments, speaks volumes about how attractive such an investment might be considered in the long run.
Partly because in a few months’ time the income of those companies is expected to fall dramatically due to the halving.
However, it is important not to forget that since the rewards for the miners are distributed in BTC, their real value depends on the market value of Bitcoin, so if the price of BTC rises, their revenues could still increase, in the long run.