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By Kadan Stadelmann, CTO of Komodo
BlackRock, the world's largest asset manager, has announced its intention to file for a Bitcoin exchange-traded fund (ETF) with the U.S. Securities and Exchange Commission (SEC).
An ETF would allow investors to gain exposure to Bitcoin without having to own bitcoin directly. In the past, the SEC has rejected several proposals for Bitcoin ETFs, including those submitted by the Winklevoss twins.
Understanding The Significance Of Blackrock's Move Into Bitcoin
This move signals a growing acceptance of Bitcoin by major financial institutions. BlackRock's entry into the market could also lead to increased adoption of Bitcoin by traditional investors who may have been hesitant before due to regulatory concerns. The approval of a Bitcoin ETF would also make it easier for retail investors to access Bitcoin as an investment option, potentially leading to increased demand.
BlackRock believes that the digital currency market is "evolving rapidly" and sees a growing demand from investors for regulated exposure to Bitcoin. A Bitcoin ETF would not be insured by the Federal Deposit Insurance Corporation (FDIC), which means that if BlackRock were to go bankrupt, investors could lose their entire investment. Of course, Blackrock could probably count on a considerable bailout were that to happen.
Blackrock's Bitcoin ETF: What Is It And How Does It Work?
An ETF is a type of investment fund that tracks the price of an underlying asset. BlackRock's Bitcoin ETF would allow investors to buy and sell shares in the fund, which would in turn hold Bitcoin.
However, many experts argue that BlackRock's Bitcoin ETF is bad for Bitcoin itself. Firstly, an ETF would likely lead to increased demand for Bitcoin, driving up its price. This could create a bubble-like situation where the price of Bitcoin becomes detached from its underlying value. Secondly, an ETF would give institutional investors exposure to Bitcoin without requiring them to actually own or understand it.
BlackRock could take advantage of this. In the filing, it states that BlackRock will “use its discretion to determine which network should be considered the appropriate network…”
It adds: “There is no guarantee that the Sponsor will choose the digital asset that is ultimately the most valuable fork.”
The Negative Impact Of Blackrock's Bitcoin ETF On The Market
The negative impact of BlackRock's Bitcoin ETF on the market is multifaceted. Firstly, it could lead to a further centralization of Bitcoin ownership, as institutional investors pour money into the ETF rather than buying and holding actual Bitcoin. This could potentially give too much power to a few large entities.
Secondly, the ETF may not accurately reflect the true value of Bitcoin, as its price will be determined by supply and demand within the ETF rather than on exchanges where real Bitcoins are traded.
This could lead to price distortions and volatility in both the ETF and Bitcoin markets. Thirdly, if BlackRock's Bitcoin ETF is approved, it may open the floodgates for other large institutional investors to enter the market with their own ETFs, further exacerbating these issues–especially centralization.
How Blackrock's Bitcoin ETF May Lead To Market Manipulation
BlackRock's proposed Bitcoin ETF may lead to market manipulation due to its sheer size and influence in the financial industry. With over $9 trillion in assets under management, BlackRock has significant power to sway market prices. The ETF would allow investors to buy and sell Bitcoin without actually owning Bitcoin, leading to a potential disconnect between the ETF's price and the actual price of Bitcoin.
This could create a situation where large institutional investors could manipulate the market by buying or selling large amounts of shares in the ETF, which would affect the Bitcoin price.
BlackRock's entry into the Bitcoin market could lead to increased regulatory scrutiny and potential government intervention due to its size and influence. Overall, while an ETF may make it easier for investors to access Bitcoin, it also creates new risks for market manipulation and potential regulatory challenges.
Why Blackrock's Bitcoin ETF Is Bad For Bitcoin And Its Decentralized Nature
BlackRock's proposed Bitcoin ETF is bad for Bitcoin and its decentralized nature because it would allow institutional investors to gain exposure to Bitcoin without actually owning any. BlackRock would theoretically hold all of the Bitcoin. This goes against the very principles of Bitcoin, which was created as a decentralized currency that operates outside of traditional financial institutions. By allowing investors to trade in a fund that tracks the price of Bitcoin, BlackRock's ETF would essentially centralize control over the cryptocurrency market.
This could lead to increased price volatility and potentially create a situation where a handful of large investors hold significant sway over the market. Additionally, an ETF could draw attention from regulators and potentially lead to increased government intervention in the Bitcoin space. Overall, while an ETF may make it easier for some investors to access Bitcoin, it ultimately undermines its core principles and threatens its long-term viability as a decentralized currency.
Author Bio
Kadan Stadelmann is a blockchain developer, operations security expert and Komodo Platform’s chief technology officer. His experience ranges from working in operations security in the government sector and launching technology startups to application development and cryptography. Kadan started his journey into blockchain technology in 2011 and joined the Komodo team in 2016.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.