In the world of cryptocurrency investments, the anticipation of Bitcoin (BTC) spot ETFs has reached a fever pitch. With this excitement comes speculation about whether asset managers like BlackRock can engage in insider trading and “front-run” their approvals. In this article, we will critically analyze the claims and shed light on what can and cannot be done by BlackRock prior to the launch of Bitcoin ETFs.
There has been much discussion and concern among crypto investors about whether BlackRock can manipulate the market with insider knowledge before their highly anticipated Bitcoin ETFs reach the market. Bloomberg ETF analyst James Seyffart, in an X space discussion, clarified the actions that BlackRock can take before approval. According to Seyffart, ETF applicants like BlackRock will only start purchasing BTC within days of their fund’s actual launch. This is done to ensure that the ETF is adequately funded and ready to sell shares to investors once it goes live.
Contrary to popular belief, BlackRock does not purchase Bitcoin on their balance sheets specifically to maintain exposure. Seyffart dispels the notion of “front-running” by explaining that the purpose of buying BTC in advance is to “seed” the ETF with funds. This means that BlackRock prepares the ETF by allocating funds in advance so that it can function smoothly upon launch. Therefore, the idea that BlackRock is engaging in insider trading or manipulating the market is overly hyped.
While BlackRock cannot buy Bitcoin specifically to maintain exposure before the ETF approval, it can still invest in BTC through other private products. For instance, BlackRock can utilize its private Bitcoin trust to invest in Bitcoin, especially if its customers are purchasing BTC ahead of the ETF approval. Consequently, inflows to alternative Bitcoin funds, such as Canadian Bitcoin ETFs and futures-based ETFs in the US, have surged in recent months due to the anticipation of ETF approval.
The prevailing optimism regarding Bitcoin ETF approval stems from Grayscale’s court victory over the Securities and Exchange Commission (SEC) in August. Seyffart points out that the SEC’s comments on Grayscale’s S-1 documents in October marked a significant departure from previous patterns. As a result, the odds of ETF approval dramatically increased, and industry insiders are expecting a simultaneous approval of multiple Bitcoin spot ETFs between January 5 and January 10.
As the approval dates for Bitcoin ETFs approach, the derivatives market indicates a bearish sentiment. This suggests that many in the market anticipate a “sell the news” event, where the approval of ETFs leads to a temporary decline in Bitcoin prices. On the other hand, some experts, including former NYSE president Tom Farley, predict that an ETF approval will flood the industry with money, driving Bitcoin’s value up.
The claims of BlackRock engaging in insider trading or “front-running” Bitcoin ETF approvals appear to be unfounded. The process of “seeding” the ETF with funds before launch is a practical approach to ensure its smooth functioning. While BlackRock can invest in BTC through other private products, this does not constitute insider trading. As the crypto community eagerly awaits the approval of Bitcoin ETFs, it is essential to critically analyze the information and debunk any misconceptions surrounding the process.