Is BlackRock applying to the SEC for a Bitcoin ETF or a trust?

BlackRock, one of the world's largest asset management giants, submitted a document application for a spot Bitcoin ETF to the US SEC through its subsidiary iShares this morning. The application document shows that the fund applied for this time is named "iShares Bitcoin Trust” whose assets “consist essentially of bitcoins held on behalf of the custodian of the trust.”

Regarding whether BlackRock applied for a spot ETF or a trust, it caused huge differences and disputes in the encryption industry. Some people think that BlackRock applied for a trust this time, but it is different from the GBTC issued by Grayscale. , it is more flexible and can be redeemed. Another view is that what BlackRock applied for this time is an ETF with an alternative structure, which represents publicly listed Bitcoin trust fund stocks. The tools are completely different, but more like the well-known ETF funds managed by GLD and BlackRock's iShares.

Is BlackRock applying for a spot ETF or a trust? What are the arguments held by analysts, investors and professionals from the encryption industry? And from the perspective of traditional finance, what are the definitions, main differences, investment risks, and respective advantages and disadvantages of ETFs and trusts? The following article will clarify these myths for you.

Is BlackRock applying for a trust?

Pomp Investments investor Anthony Pompliano believes that BlackRock is applying for a trust, not a Bitcoin ETF. While the two are technically different, especially when it comes to regulatory approvals, the outcome for investors is the same. Anthony Pompliano tweeted that GBTC is a trust, so you cannot redeem it from the fund. BlackRock is also a trust, but you can redeem it. If the application is approved, it would be a huge win for investors. However, the biggest plus is still the approval of a real bitcoin spot ETF by the SEC.

Joey Campbell, account manager at SCRIB3, a Web3 technology marketing studio, agreed that BlackRock was submitting trusts, tweeting, “Some of us are currently shocked by the nomenclature of ‘trusts’ vs ‘ETFs’ and some say it doesn’t. What a difference. The reason “trusts” have everyone on high alert is because of Grayscale’s Bitcoin Trust, which is currently trading at a significant discount to NAV. This is because investors cannot redeem their holdings for BTC. Non-redemption means that it cannot be bought at a discount in the market and cannot be sold for arbitrage. This is different from BlackRock's trust fund. "

"As described in the prospectus, you will see Authorized Participants (AP, Authorized Participants, one of the main participants in the exchange-traded fund (ETF) redemption mechanism, in essence, AP is the provider of ETF liquidity Or, they can change the supply of ETF shares in the market.) Blocks of fund shares are provided for continuous redemption/creation, which means that APs of the trust can redeem/create funds at any time throughout the day.”

"For example, if 40,000 BTC (1 "block") is worth $40 million based on the current price of BTC, the fund's stake is calculated to be approximately $39 million for 40,000 BTC. Then, the AP authorizes the participant to buy the share, redeem the 40,000 BTC held by the trust, and then sell it for a profit of 1 million. "

Another person who held the same view was Joe Consorti, a market analyst at The Bitcoin Layer, who tweeted, "This is not an ETF, it's a trust. Because it doesn't have the daily redemption mechanism that ETFs have, it will be redeemed every day." Baskets of 40,000 bitcoins are added to and redeemed from this trust. It creates NAV premium and discount issues similar to the Grayscale Bitcoin Trust.”

Another point of view: BlackRock is applying for an ETF

CEHV partner Adam Cochran believes that BlackRock is applying for an ETF, but many ETFs have alternative structures. Unlike GBTC, BlackRock is applying for an ETF in the form of a redeemable trust, which represents publicly listed bitcoin trust fund shares, rather than directly handling bitcoin asset units through liquidation.

Eric Balchunas, Bloomberg's senior ETF analyst, who sees it as an ETF, tweeted, "For those who think BlackRock is applying for a trust and not an ETF, I would like to ask, what do you think of $GLD Is it an ETF? In fact, both are the same. There are many different structures under the "ETF" asset class. It is completely different from $GBTC. "

Bruce Fenton, CEO of Watchdog Capital, an SEC-registered broker-dealer, believes that what BlackRock submitted is an ETF, which some people think is a trust, but it is different from financial instruments such as GBTC, and more like the management of GLD and BlackRock’s iShares. Many well-known ETF funds.

Considering that what BlackRock applied for this time is not a trust in the traditional sense, nor does it fully meet the definition of an ETF. Therefore, we will list the definitions and main differences between ETFs and trusts below.

What is the difference between ETF and trust?

An investment fund that trades on a stock exchange like individual stocks, an ETF is a type of security that holds underlying investments such as commodities, stocks, or bonds. It is often similar to a mutual fund in that it is jointly managed by the issuers. ETFs are designed to track the performance of a particular market index, sector or asset. When investors buy ETFs, they are buying shares in a portfolio of asset bases such as stocks, bonds or commodities. One of the benefits of investing in ETFs is that they provide easy access to a diversified basket of securities. ETFs are also generally inexpensive compared to other types of investment vehicles.

An investment trust is a closed-end investment fund listed on a stock exchange. These trusts are managed by a professional fund manager who invests the money held in the trust. The fund manager will use the money to buy a portfolio of assets such as stocks, bonds or property. The price of shares in an investment trust is determined by the value of the assets held in the trust.

Overall, one of the main differences between ETFs and investment trusts is their structure. ETFs are open-ended, which means the number of shares available can be increased or decreased based on demand. Investment trusts, on the other hand, are closed-end, which means there is a fixed number of shares available.

Additionally, ETFs can be bought and sold on stock exchanges throughout the trading day, just like individual stocks. However, the investment trust only trades once a day at the end of the trading day. Also, the cost structures of ETFs and investment trusts are different. ETFs are generally less expensive than investment trusts because they are designed to track an index and require less active management. Investment trusts, on the other hand, are actively managed and therefore may have higher fees.

In the field of encryption, Grayscale's GBTC Trust Fund is the absolute leader in the cryptocurrency market, managing over $35 billion in assets. The structure of investing in the trust is corporate - at least in regulatory terms - a "closed-end fund". Therefore, the number of stocks available is limited, and their supply and demand largely determine their prices.

GBTC shares are not easy to create and do not have an active redemption program. This tends to create a noticeable price differential to its net asset value. In contrast, ETFs allow market makers to create and redeem shares at will. Therefore, if there is sufficient liquidity, there will usually not be a premium or discount. An ETF vehicle is more acceptable to mutual funds and pension funds because it carries far less risk than a closed-end trust like GBTC.