With the highly anticipated approval of Bitcoin spot ETFs on the horizon, concerns have arisen among crypto investors about the potential for asset managers like BlackRock to engage in insider trading. Investors are curious whether these companies can “front run” their approvals using insider knowledge before the funds reach the market. In this article, we will analyze the situation and address these concerns.
According to Bloomberg ETF analyst James Seyffart, ETF applicants will only begin buying Bitcoin within days of their funds’ actual launch. The purpose of this is to “seed” the ETF with funds in advance so that it is ready to sell shares to investors once live. Seyffart clarifies that this process does not involve asset managers buying Bitcoin on their balance sheets specifically to maintain exposure. Therefore, the concerns about front-running may be exaggerated.
While ETF approvals are pending, BlackRock can still invest in Bitcoin through other private products, such as their private Bitcoin trust. This is especially true if their customers are purchasing BTC ahead of the ETF approval. In recent months, alternative Bitcoin funds, including Canadian Bitcoin ETFs and futures-based ones in the United States, have seen record-breaking inflows. This suggests that investors anticipate an ETF approval and are seeking exposure to Bitcoin through other means.
Seyffart believes that this time may be different when it comes to ETF approvals. He points to Grayscale’s court victory over the Securities and Exchange Commission (SEC) in August as a game-changer. Previously, ETFs had been denied repeatedly, but the SEC’s comments on Grayscale’s S-1 documents in October signaled a break in their pattern. This shift in approach raises the odds of ETF approvals.
BlackRock’s S-1 filing in October stated that the company would seed its fund with $100,000 before launch. However, an updated filing on Friday revealed that the amount has increased to a staggering $10 million planned for January 3. This significant increase in seed funding indicates BlackRock’s confidence in the upcoming ETF approval.
Based on the timing of comment periods and approval deadlines for rival applicants, analysts, including Seyffart, expect multiple Bitcoin spot ETFs to receive simultaneous approval between January 5 and January 10. It is worth noting that Bitcoin derivatives markets are currently showing bearish sentiment ahead of the approval date. This suggests that many investors believe the ETF approval may be a “sell the news” event.
Despite the bearish market sentiment, former NYSE president Tom Farley believes that once an ETF is approved, money will flood into the industry. This optimistic outlook aligns with the growing interest and excitement surrounding Bitcoin ETFs.
While concerns about insider trading remain, it is important to understand the limitations surrounding ETF purchases and the potential for investment through other private products. The changing stance of the SEC and the increase in seed funding by BlackRock indicate a favorable environment for Bitcoin spot ETF approvals. Whether this will result in a bullish or bearish market reaction remains to be seen, but the prevailing sentiment suggests that an approved ETF could bring a significant influx of money into the industry.
Leave a Reply