In a document sent today to the SEC, it is stated that BlackRock received an initial capital of $100,000 for the establishment of its Bitcoin spot ETF.
The capital has been provided by an undisclosed investor, who on October 27, 2023 agreed to purchase shares of the ETF for a total amount of $100,000, receiving in exchange 4,000 seed shares at a price of $25 per share.
The initial start-up capital represents the financing that allows an ETF to fund the creation of the underlying asset, thus enabling the fund managers to offer the shares on the open market.
Summary
BlackRock’s Bitcoin ETF
The underlying of BlackRock’s ETF in this case is Bitcoin (BTC). Therefore, it is reasonable to assume that the company issuing and managing the fund, iShares, owned by BlackRock itself, has started to purchase a small portion of BTC from the market.
100,000$ are objectively very few, compared to the market capitalization that this ETF could reach once launched on the market, and they are not able to move the price of BTC.
Just to say that usually every day on the spot markets Bitcoin are traded for a total value of over 30 billion dollars.
However, it is not said that iShares has limited itself to buying $100,000 in BTC. In fact, if it wants to be able to launch the ETF on the market as soon as it receives approval, it must necessarily have already accumulated enough BTC to be able to issue all the shares requested by the market.
Note that the updated document submitted to the SEC to request approval for this ETF is a lengthy 112 pages, meaning it is very detailed.
After all this work, and all the feedback received from the SEC itself and accepted, it seems indeed very unlikely that the request will be rejected.
BTC withdrawal
Every time a share of the fund is issued and sold, its managers will have to ensure that it is covered by sufficient collateral. This means that iShares will have to purchase BTC from the market in order to issue shares of BlackRock’s Bitcoin spot ETF, and will also have to immobilize them in a cold wallet after purchase.
The price of the seed shares already sold at the end of October ($25) does not necessarily reflect the market value they will have once they land on the stock exchange. Therefore, it does not even allow to calculate how many BTC are locked up for each issued share.
However, in the document submitted to the SEC, it is stated both that the fund intends to issue shares on an ongoing basis, and that it will issue and redeem them only in blocks of 40,000 or whole multiples.
This applies only to the primary market, because on the secondary market (i.e. Nasdaq) shares can be bought and sold individually.
Depending on how many blocks of 40,000 shares are issued or withdrawn from the fund, the number of BTC that will need to be kept immobilized in custody will vary.
Therefore, if the market ends up demanding many of these 40,000 iShares packages, it will be forced to buy many BTC on the spot market, effectively removing them from this same market. The consequence could be a reduction in the supply of Bitcoin on the spot market.
The timing
As of today, it seems that everything is almost ready for the launch of the iShares Bitcoin Trust on the market (specifically on Nasdaq).
The only obstacle that still remains to be overcome is precisely the approval of the SEC.
In theory, the SEC would have until mid-March to make a decision on the matter, but approval is actually expected by early January.
In fact, there have been many similar requests received by the SEC, and it is likely that in order to not favor any particular one, the agency will end up approving all of them together, as long as they meet all the requirements.
The first request on which the SEC will be forced to issue a judgment is that of ARK and 21Shares, whose deadline is January 10th.
If the government agency decides to approve this request, it will most likely also approve all the others that meet all the necessary requirements.
It seems very likely that the SEC will end up approving ARK and 21Shares‘ request, and therefore the bulk approval of Bitcoin spot ETFs in the USA should arrive by January 10th.
Even BlackRock’s request should meet all the requirements, so it should be among those approved.
The consequences on the price of Bitcoin of BlackRock’s ETF
Although the long-term consequences on the price of BTC of the approval of these ETFs could be positive and significant, it is not necessarily the case that the same thing will happen in the short term.
In fact, it seems that in recent weeks the markets are already pricing in the likely news of approval, so after its publication, a price retracement of Bitcoin is even possible.
This could lead to a correction in the price of Bitcoin shortly before mid-January, but at the same time it could cause it to rise even further in anticipation of the 10th of the same month.
Another issue, instead, concerns the consequences that the withdrawal of BTC from spot markets due to the issuance of their shares may have, because to date no one knows how many will be issued, and therefore how many BTC will be withdrawn from spot markets.
It is possible that the consequences of this withdrawal will manifest themselves over a period of up to three years, with the majority likely to occur in 2024 or 2025.
