Jan. 20 saw BlackRock - the world's largest asset management firm which manages more than $8.7 trillion in assets - seemed to have approved its two related funds, that is, BlackRock Global Allocation Fund Inc. and BlackRock funds to invest in Bitcoin futures.
In this respect, the prospectus files submitted to the U.S. Securities and Exchange Commission (SEC) indicate that BlackRock is seeking to get involved in Bitcoin, especially the first cryptocurrency to be added to the firm's list of approved derivative products.
In addition, in the past few months, BlackRock executives have made positive comments on Bitcoin, suggesting that in the near future, many institutions may consider using digital assets to expand the scope of their financial products.
For example, Rick Rieder - chief investment officer of BlackRock - noted in an interview last November that Bitcoin has the potential to "replace gold to a large extent." BlackRock CEO Larry Fink also expressed similar views. He stated that Bitcoin has attracted public attention and may develop into a global market of its own.
Finally, it is worth noting that just a month ago, BlackRock issued a job advertisement seeking a qualified talent for its New York office to serve as a vice president and head of blockchain. This position requires applicants to develop and implement various strategies to help "drive demand for company investment and technology products."
The meaning behind BlackRock's entry
BlackRock's investment in Bitcoin futures is an important step in the global crypto ecosystem in that tremendous credibility is brought to Bitcoin as a new asset class. Jason Lau - chief operating officer of cryptocurrency exchange OKCoin - noted that this move will create conditions for other asset management firms to follow suit, as most traditional asset management firms are usually "consensus followers," adding:
"With BlackRock's announcement, other asset managers are going to be able to point to BlackRock's work in convincing their investment committees and the client investment boards about the potential and maturity of BTC and the crypto ecosystem."
At present, CME futures and investment trust shares issued by Grayscale and Bitwise are the two main tools for institutions to participate in the crypto sector. However, the trust has generated a huge premium relative to the underlying price of Bitcoin as a result of severe restrictions. For example, Lau stated that amid the Bitcoin price increase last December, Grayscale Bitcoin Trust had a 40% premium over Bitcoin's underlying value.
Kyle Samani - managing partner of Multicoin Capital - stated that BlackRock's entry is a big step forward for the overall sector. He believes that it will allow more investors to engage in the Bitcoin market through enabling some funds go long on Bitcoin.
Is it late for BlackRock to engage in the sector?
Although some people are pleased with the news of BlackRock's entry into the crypto market, Santiment founder and CEO Maksim Balashevich reckoned that the response of the public may be more decisive, and the public is often the most critical factor in determining market price trends. He added: "BlackRock's entry is no special event but just yet another 'latecomer' from 'big money' funds. The move won't have any implications except further professionalizing, increasing the liquidity of the market."
When it comes to the possible impact of BlackRock's entry on the stability of Bitcoin’s potential value, Balashevich noted that despite these "significant moves", the volatility of cryptocurrencies still remains. There will boast more volatility in the following few months.
In the end, with regard to the question of whether the saturation point of institutions entering this field is getting closer, he believes that the crypto space is indeed "getting very close to the peak" and "there are not many large firms" to participate in the market.
Is the Bitcoin ETF approved by SEC around the corner?
The SEC has historically rejected many ETF proposals, such as those submitted by Phoenix Wilshire and Gemini. The authority holds that price manipulation, lack of liquidity, and price indexing sources are key issues. However, as BlackRock enters this field, it appears that approval of ETFs may finally arrive in 2021.
It will be interesting if BlackRock's ETF business iShares decides to become the first major player to realize this fast-opening window of opportunity and apply for the establishment of an ETF. Recently, VanEck - an investment management firm - once again submitted an application to the SEC to create a new Bitcoin ETF. Valkyrie Investments also submitted a similar application following VanEck's move. Therefore, the ETF competition is emerging.