BlackRock's Bitcoin Spot ETF

BlackRock’s Bitcoin Spot ETF

Late last week, BlackRock filed a Bitcoin Spot ETF with the Securities and Exchange Commission (SEC), which signals confidence that Grayscale will win their lawsuit against the SEC.  According to Bloomberg’s senior ETF analyst, BlackRock’s record for ETF approval by the SEC is 575-1. With that track record and dominant position as the world’s largest asset manager (owning 33% of the U.S. ETF market) they have the knowledge, experience and influence on how this will play out.  

Being the front runner has serious advantages, especially for a market leader like BlackRock. It’s good to understand the SEC’s 19b-4 approve or deny process that is used to inform the SEC of a proposed rule change by a self-regulatory organization (SRO), in this case BlackRock, that is pursuant to Rule 19b-4 under the Securities Exchange Act of 1934. ​This process, run by the SEC, adheres to a specific timeline and applications are handled in the order they come in. For the Bitcoin Spot ETF there is one application ahead of BlackRock, filed by 21Shares in partnership with ARK Investments. The SEC has 45 days to approve, deny or delay. If they delay they do not need to give any reason and it goes to another 45 days.  They can do this for 240 days and then they need to give reason for delay. So best case scenario it will be approved in 45 days and worst case scenario the process could take up to 240 days. 

So what does this mean for the digital assets market and Lightning Capital?

It pushes for regulatory clarity. The SEC Commissioner, Hester Peirce, recently weighed in on the lack of regulation in the space on podcast Unchained. “There are unique aspects of digital assets that I think require us (the SEC) to think about what the right regulatory framework is and not try to jam digital assets into an existing regulatory framework. I think we've wasted a lot of time, not sitting down and figuring out reasonable solutions that address concerns but also are practical and answer questions about what does this actually mean for these tokens in the primary market? In the secondary market? How are they going to trade, who's going to trade them?” By the SEC providing clarity, it will allow for the ecosystem in the U.S. to move forward with confidence and allow innovation to thrive. It makes sense to make updates to a framework outlined almost ninety years ago.

It means continued growth and engagement by institutional and retail investors now with access to products like Spot ETFs from trusted market leaders like BlackRock. On May 9th, Grayscale filed three ETFs, one being the Ethereum Futures Spot ETF. Within thirteen minutes of their filing three other SROs filed for Ethereum Futures ETF’s. Since there is still debate over Ethereum and ETH being a security it is a greater risk that it will not be approved, but the first mover advantage is real.  So, the race is on.

Lightning Capital has been accumulating Grayscale products at significant discount to their Net Asset Value (NAV). Our team and technology have given us the edge to diligently track NAV and amass our position well below fair value. If Grayscale wins their lawsuit with the SEC or a Bitcoin Spot ETF is approved, we have significant upside. As of June 20th, Grayscale Bitcoin Trust (GBTC) is trading at a 33% discount to its NAV. If Blackrock’s bitcoin spot ETF is approved, we expect GBTC to start trading closer to, or at NAV. That represents an approximate 50% upside for GBTC. An approval for GBTC will increase the likelihood that other products will become ETFs. For example, Grayscale’s Etherem Trust (ETHE) is trading at a 54% discount to its NAV. An ETF approval would result in more than a 100% move in ETHE.

We continue to track this data to guide our investment decisions. If you have any questions, feel free to reach out to us.