BlackRock Bitcoin ETF: Big Players Moving In?
21 June 2023
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The largest asset manager in the world, BlackRock, has applied for a spot bitcoin ETF, seeking approval from the US Securities and Exchange Commission (SEC).
An ETF, or Exchange-Traded Fund, is a type of investment fund. In the context of the BlackRock, the ETF allows investors to gain exposure to bitcoin without directly owning the cryptocurrency. Instead, they can buy shares of the ETF, which represents ownership in a portfolio of bitcoin.
The timing of this move is notable, as the SEC is currently scrutinizing Coinbase for alleged securities law violations, while BlackRock intends to partner with Coinbase as its custodial provider. While some see this institutional entry into BTC as a positive development, others express concerns about the potential for a hostile takeover by old-world wealth.
Mark Yusko, founder of Morgan Creek Capital Management, raises the question of whether BlackRock could gain control of Xapo, the institutional-scale crypto custody tool acquired by Coinbase. If BlackRock were to hold a significant portion of crypto assets and regulators deemed Coinbase an unlicensed casino, there could be a scenario where BlackRock takes over the storage unit. The Bitcoin community has responded negatively to the ETF application, citing concerns over BlackRock's potential actions in the event of a hard fork.
(A "hard fork" refers to a significant change or upgrade in the underlying protocol of a blockchain network that results in a permanent divergence in the blockchain's history. It occurs when a single blockchain splits into two separate chains, each with its own version of the blockchain's transaction history).
However, crypto investors have mostly seen these indicators as a positive, as it means more people will be able to buy digital assets through traditional financial institutions.
These developments signal a critical juncture for Bitcoin, as institutional involvement brings both opportunities and risks. As regulators evaluate BlackRock's ETF proposal, the implications for the crypto industry and the balance between traditional wealth and the decentralized ethos of Bitcoin remain uncertain. Read more here.
Unveiling the Rise of Cryptocurrency Investments: ASX Australian Investor Study 2023
We have focused on summarizing the ASX Australian Investor Study findings specifically related to cryptocurrency investments. (The full report can be downloaded from the ASX site here.)
The study highlights the increasing popularity of cryptocurrencies among Australian investors, with approximately 15% of investors currently owning digital assets. Next-generation investors, in particular, show a strong interest in cryptocurrencies, with a significant 31% of this group involved in crypto investments. Additionally, the study reveals that men are more likely to engage in cryptocurrency investments compared to women. Crypto investors are willing to accept more risk for the chance of higher returns.
However, cryptocurrency investments are still an emerging part of overall portfolios, with holdings typically around 3%. "Wealth accumulators" and "next-generation" investors have the most significant crypto allocations, while retirees have the lowest. Caution remains among investors, but a sizeable group of "high-value" investors have invested $100,000 or more.
Most crypto investors prefer dedicated cryptocurrency exchanges, but next-generation investors also show interest in derivatives and ETFs. While cryptocurrencies can be volatile, 29% of intentional investors are considering investing in them. However, challenges with cryptocurrency exchanges may affect future growth and there are concerns about regulation and investor protection.
The Australian investment landscape is changing as more investors explore cryptocurrencies. Younger investors are driving this trend, but there is a need for better education on managing risks. The future of investing in Australia looks promising, with an influx of new investors and evolving priorities. ASX Australian Investor Study 2023.
Screenshot from within the ASX Australian Investor Study 2023 report.
Understanding the Difference: Commodity vs Security in the Cryptocurrency World
In cryptocurrencies' vast and evolving landscape, it is crucial to understand the fundamental differences between commodities and securities. While both play essential roles in the financial markets, their nature, regulatory frameworks, and investor implications diverge significantly. Below we highlight some of the differences between commodities and securities in cryptocurrency, focusing on Zucoins as a digital asset.
There are many more details to this, but this should be an approachable start:
Commodity: A Digital Asset
Commodities, including precious metals, energy resources and agricultural products, have long been recognized as commodity assets. Trading commodities involves buying, selling, or trading a raw product, such as oil, gold, or wheat.
Bitcoin, for example, can be considered a commodity for a few reasons:
- Limited Supply: Bitcoin has a cap of 21 million coins. This finite supply, similar to physical commodities like gold, can lead to price fluctuations based on demand.
- Store of Value: Bitcoin is often referred to as 'digital gold' because many investors view it as a "store of value" or "safe haven" asset that will retain its value over time, or even appreciate, rather than depreciate like fiat currencies can. This is a characteristic shared with commodities.
- Not Tied to a Specific Entity: Bitcoin is decentralized and is not issued or regulated by a government, bank, or company. Instead, its value derives from its utility (such as the ability to facilitate transactions) and the consensus of its users, much like commodities which derive their value from their usefulness and market demand.
- Market Pricing: The price of Bitcoin is determined by what someone is willing to pay for it, similar to commodities. The price can be influenced by various factors, including supply, demand, market sentiment, and macroeconomic factors.
- Tradability: Like commodities, Bitcoin can be bought and sold by bartering, exchanges or it can be held as an investment.
However, it's worth noting that while Bitcoin shares these characteristics with commodities, it's unique in many ways and doesn't neatly fit into traditional asset classifications. Its classification for legal and regulatory purposes varies widely by jurisdiction. In a growing number of cases, it's being treated as a commodity, in others as a currency, or property. As we cover regularly here, this remains a topic of ongoing debate and discussion among regulators and financial institutions worldwide.
Security: A Financial Instrument
On the other hand, securities are financial instruments that represent ownership or debt obligations in an entity, such as a company or government. Securities typically include stocks, bonds and derivatives. They are subject to stringent regulatory oversight to protect investors.
Unlike commodities, securities provide investors with entity ownership rights, dividends, interest payments, or other financial benefits tied to the underlying entity's performance. Some of these entities are considered "wrappers" around commodities, like a gold mining company, that are considered securities.
In this example, the gold is the commodity, but the company mining it could have investors and give dividends on the gold they find and sell, thus having to follow securities rules.
Securities are subject to their own securities laws and regulations, which aim to ensure transparency, investor protection, and market integrity.
Key Differences in Regulation and Investor Implications:
The distinction between commodities and securities in cryptocurrency has significant implications for regulatory frameworks and investor protections. Commodities, considered digital assets like Bitcoin, often operate in a less regulated environment than securities. This regulatory distinction can influence investor safeguards, reporting requirements, market transparency and speed of innovation.
The above should hopefully shed some light on why Zucoins' focus has always been to treat and consider the Zucoins digital token as a digital commodity, via the Splitchain protocol. Many painstaking decisions have been made towards this delicate and difficult path, for long term sustainability of the Splitchain protocol and thus Zucoins.
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All the best,
Peter
MyZucoins
Disclaimer: Of course, this is not advice, financial or otherwise. It’s also important to consider the risks and challenges associated with any potential benefits.