On 15 June 2023 BlackRock filed with the SEC for an exchange-traded fund that would hold bitcoin directly. What has been filed, what is still missing and what the precedent says.
On 15 June 2023, BlackRock, the world’s largest asset manager, filed with the US Securities and Exchange Commission (SEC) the iShares Bitcoin Trust, an exchange-traded fund (ETF) that would hold bitcoin directly. It is not an approval or a product launch: it is the first step in a process that, for a spot bitcoin fund, the SEC has so far never resolved with a yes.
What has been filed
The document is a registration statement (Form S-1) for a trust formed in Delaware on 8 June 2023. The sponsor is iShares Delaware Trust Sponsor, an indirect subsidiary of BlackRock. According to the draft, the fund would seek to reflect the price of bitcoin, its assets would be mainly bitcoin held by a custodian, Coinbase Custody Trust Company, and its shares would list on Nasdaq. The text still has blanks: the ticker symbol and the annual fee are missing.
It is called “spot” because the fund would own the bitcoin, unlike bitcoin futures funds, which do not hold it and which have traded in the United States since October 2021. The net asset value would be calculated each business day, after 4:00 p.m. New York time, using the CME CF Bitcoin Reference Rate (New York variant) from CF Benchmarks. Shares would be created and redeemed in blocks of 40,000, in exchange for bitcoin, through authorised participants.
What is still missing
Two steps are needed. The first is for the SEC to declare the registration statement effective. The second is for it to approve the rule change that the exchange where the fund would list has to submit in order to list it, known as Rule 19b-4. It is in this second step that the SEC has rejected spot bitcoin fund applications, among them the attempt to convert the Grayscale Bitcoin Trust into an ETF.
The most recent precedent is Grayscale’s. The NYSE Arca exchange filed the application to list that fund in October 2021, and on 29 June 2022 the SEC rejected it. Its reasoning was that the exchange had not shown it had a comprehensive surveillance-sharing agreement with a regulated market of significant size, so its rules could not be considered designed to prevent fraudulent and manipulative acts. Grayscale challenged the decision in a federal court, which had not ruled at the date of this note.
What to keep clear
A filing is not an approval and has no deadline. In Grayscale’s case, eight months passed between the exchange’s application, on 19 October 2021, and the SEC’s decision. Nor is there any guarantee of the outcome: the SEC can approve, reject or ask for changes.
A fund being listed does not change the nature of the asset. Bitcoin is volatile, and BlackRock’s own document warns of risks such as security threats to the fund’s account at the custodian, which could lead to losses; the fund would also charge a fee that has not yet been set. Anyone living in Spain would also need to check whether their bank or broker offers a product of this kind and under what rules.
Until the SEC decides, all that exists is a draft prospectus. Before any decision on crypto-assets, ask your adviser how it fits your case.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
