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BlackRock’s Concerns: Bitcoin’s Lack of Regulation and Transparency in New ETF Filing

BlackRock’s Amended ETF Filing Addresses Bitcoin Market Concerns

BlackRock, a prominent investment management firm, has filed an amended version of its spot Bitcoin ETF S-1 application, taking into account various risks that investors may encounter in the cryptocurrency market. In this updated filing, BlackRock acknowledges potential challenges associated with Bitcoin and highlights the lack of transparency in the market.

Expanded Risk Disclosure

In the revised filing, dated October 18, BlackRock has expanded its risk disclosure to address the impact of tumultuous events within the broader cryptocurrency industry. While their previous filing focused on risks related to fraud and security failures on major Bitcoin exchanges, the updated version now includes concerns about Bitcoin itself. BlackRock emphasizes that the Bitcoin market is “unregulated” and “lacks transparency.”

According to BlackRock, the unregulated nature and the lack of transparency in both digital asset exchanges and the broader Bitcoin market could potentially have adverse effects on the value of Bitcoin and, consequently, the value of the ETF shares, leading to potential losses for shareholders.

Concerns About Fake Volume

The filing cites data from 2019, indicating that 80.95% of spot Bitcoin trading volume was “false or noneconomic in nature.” This primarily refers to the volume traded outside of U.S. regulated venues. While more recent analysis by Bitwise, a competing ETF applicant, suggests a decrease in fake volume as a share of total BTC volume compared to four years ago, it remains a significant concern.

BlackRock’s amendments also acknowledge the fierce competition in the market, with eleven different companies, besides BlackRock, racing to launch a spot Bitcoin ETF as of October 17. The company recognizes the potential challenge of gaining market share for its product: “There can be no assurance that the Trust will achieve initial market acceptance and scale due to competition.”

Calculating Bitcoin’s Price

The amended filing sheds light on how BlackRock intends to calculate Bitcoin’s price. The company plans to derive its benchmark from multiple spot Bitcoin exchanges, aggregating data to form the benchmark.

Progress on ETFs

Market experts have observed a change in the SEC’s attitude toward ETF issuers, noting that the regulatory body is now asking more constructive questions about their applications. This shift in behavior has raised hopes for the approval of one or more Bitcoin ETFs.

Cathie Wood, CEO of Ark Invest, mentioned the change in the SEC’s tone, suggesting a positive outlook on Bitcoin ETF approvals. Similarly, Mike Novogratz, CEO of Galaxy Digital, predicted the likely approval of a spot Bitcoin ETF within the next three months.

BlackRock’s CEO, Larry Fink, also commented on Bitcoin’s recent rally, referring to it as a “flight to quality” after Bitcoin surpassed $28,000 earlier in the week.

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