Fear Blackrock ETF?

Key Takeaways

  • Blackrock is the largest asset manager globally and has applied for a Bitcoin ETF.
  • There is no assurance that it will be approved, and the Securities and Exchange Commission (SEC) has rejected all previous spot ETF applications.
  • Exchanges have been struggling with layoffs and lawsuits amid regulatory crackdown.
  • An approved ETF may divert even more volume from exchanges.
  • Exchanges have experienced a significant outflow of capital over the past year due to the crypto winter, and an ETF would provide an easy way for institutions and individuals to gain exposure to Bitcoin prices.

Crypto exchanges have faced a difficult few months, with Coinbase reducing its workforce by 18% last June and a further 20% in January, while Kraken and Crypto.com cut their workforces by 30% and 20% respectively.

Binance, which had initially claimed to be hiring rather than downsizing, announced that it would cut an unspecified number of employees last month. The industry has seen a significant decline, with Coinbase’s share price down 86% from its public offering price in April 2021.

Regulation has also been a significant issue, with US lawmakers cracking down heavily on crypto. The SEC filed lawsuits against Coinbase and Binance two weeks ago, and SEC Chair Gary Gensler has criticized the sector for “mass non-compliance.”

Blackrock files for Bitcoin ETF

Last week, Blackrock, the largest global asset manager, applied for a spot Bitcoin ETF. The SEC has rejected all previous filings for a Bitcoin ETF, but Blackrock’s application is considered the most serious yet.

An approved ETF could help restore the crypto space’s reputation, as it has been fighting for legitimacy for years and has faced various scandals.

Exchanges could suffer off the back of an ETF

An interesting aspect of this is the potential consequences for exchanges. If an ETF is approved, fewer people may trade on exchanges. While there is a drawback to an ETF in that it does not provide the “true” Bitcoin experience, it does offer price exposure, which is all that most people care about.

One issue to consider is fees. ETFs are known for being cost-effective while exchanges tend to be more expensive. For example, Coinbase’s current fee is 0.6%. The question is whether people would be willing to pay a higher fee to purchase through Coinbase. The reputation of the space also needs to be considered. Blackrock has a strong reputation in Wall Street capital, while crypto firms like Coinbase have their CEOs engaging in public arguments with the SEC on Twitter.

An ETF provided by Blackrock would offer a no-frills, inexpensive, and safe way to gain exposure to Bitcoin prices. It would also be smoother from a regulatory perspective and eliminate issues with storage and other administrative tasks that come with buying Bitcoin directly (ironically, the ETF proposes using Coinbase as a custodian).

If the ETF is approved (which is far from guaranteed, as every other ETF application has been rejected to date), it would be a significant victory for Bitcoin and the crypto market. This would benefit all firms involved in the space. However, for exchanges, it would also bring new competition at a time when liquidity, volumes, and prices are down, while layoffs and lawsuits are on the rise.

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