What are the considerations behind the Bitcoin spot ETF of “coveted” Belmont?

What are the considerations for Belmont's "coveted" Bitcoin spot ETF?

BlackRock does not directly hold Bitcoin, it only manages clients’ assets, allowing them to access more cost-effective Bitcoin purchasing services.

Author: huf, Co-founder of Pear Protocol

Translation: Frank, Foresight News

People don’t really know what BlackRock is, or what they are doing.

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First, let’s briefly introduce BlackRock’s founder and CEO Larry Fink, because this will be important later.

Larry Fink joined Wall Street in 1976 and he was smart and made money. He was the first to propose the concept of securitization of debt (packaging different loans into bonds). Then he was in charge of the trading department that managed these mortgage-backed securities (MBS), yes, those bonds that caused the global financial crisis in 2008.

Larry Fink then made a mistake, losing over $90 million due to a wrong bet on interest rates, which made him realize: Risk management is important, customer trust is important.

So the ambitious Larry Fink decided to start his own company, focusing on these two principles, that is, “trust me, brother.”

To start the business, he found a colleague from Blackstone Group, and obtained a credit line of $5 million. Thus, Blackstone Financial Management was born, and after 20 years of extensive mergers and acquisitions, it became BlackRock, which now has an asset management scale of about $9 trillion and is the largest asset management company in the world.

But for Larry Fink, it’s not enough just to build a great company. In 2016, he was widely regarded as Hillary Clinton’s nominee for U.S. Treasury Secretary after she was elected president.

He has deep political connections and background, and is a straight-talking Democrat, often heard saying “as I told Washington…”

Now, let’s focus on BlackRock, the large asset management company. Some people think it will “own all your Bitcoin”.

But in fact, BlackRock doesn’t own anything, and its clients are the real owners. BlackRock only manages these assets and does not have custody functions. It is not a bank either.

Don’t believe me? Then take a look at the first page of their annual report: “We are a fiduciary to our clients. The money we manage belongs to our clients”.

So, how does BlackRock work? It’s simple. Suppose you want to invest in US stocks. Instead of buying all the stocks yourself, and frequently rebalancing or paying taxes for each transaction, it is better to buy a BlackRock ETF or BlackRock actively managed fund and let them do it for you.

You will receive a receipt to confirm your ownership (calculated as a percentage of the holding) of the ETF or active fund, and then the ETF or fund will track the value and performance of these underlying assets. BlackRock cannot do much with these assets, and can only use a custodian bank to hold them (only repurchased under ISDA/CSA).

Similarly, BlackRock is also powerless over the spot Bitcoin in Coinbase’s custody account, because Bitcoin does not belong to them at all. They only provide you with a more cost-effective purchasing service.

However, what is really interesting is BlackRock’s relationship with the US government and the Federal Reserve. Do you know who finally managed the toxic assets taken over by the Federal Reserve from Bear Stearns in 2008?

That’s right, it’s BlackRock.

In addition, when Powell and the Federal Reserve wanted to start buying some corporate bonds in 2020 to help support the economy, guess who they turned to?

Yes, it’s BlackRock again.

Here’s the interesting part. Guess who the Federal Deposit Insurance Corporation (FDIC) chose to clean up the investment portfolios of Signature Bank and Silicon Valley Bank earlier this year?

Yes, it was still BlackRock.

As Eric Balchunas, senior ETF analyst at Bloomberg, pointed out, BlackRock’s application for a bitcoin spot ETF is indeed a big deal, so what is BlackRock’s overall view of digital assets?

We can find the answer on page 19 of their annual report.

BlackRock has identified some things they are interested in, especially the tokenization of real-world assets (RWA), including stocks and bonds.

Remember, Larry Fink himself made a big bet on securitizing debt and made a fortune. That is to say, he fully understands the power of financial innovation (especially packaging assets) and its potential for new products, capital efficiency, cost advantages, etc.

But this is not BlackRock’s only focus in the crypto field. They also talk the talk and walk the walk, investing $400 million in stablecoin USDC alongside Fidelity and several other companies to its issuer Circle.

Circle co-founder and CEO Jeremy Allaire is also a fan, as Circle uses BlackRock to help manage some of its reserve assets (although at a high cost).

What’s really interesting to me is that BlackRock chose Coinbase as the custodian of its spot bitcoin ETF, which means it chose a company that is being watched closely by the U.S. Securities and Exchange Commission (SEC).

It could have chosen The Bank of New York Mellon, the oldest and most trusted bank in the United States, as a safe choice, and the following news was big news at the time.

However, is this really a surprise? After all, BlackRock has already been involved in some of Coinbase’s businesses, such as the partnership between Coinbase and Aladdin (Foresight News Note: Aladdin is an integrated platform that meets BlackRock’s own and its institutional clients’ needs for efficient operation and investment management).

You can quote me: Aladdin is to BlackRock as AWS is to Amazon.

So what impact will this have on us? Well, the U.S. Securities and Exchange Commission (SEC) can still reject ETFs based on two reasons:

• Spot bitcoin can be manipulated;

• Currently, there is no “sufficiently-scaled” spot exchange under the regulatory sharing agreement with NASDAQ;

Obviously, there are some parts here that may change, BlackRock does not want spot bitcoin to be dominated by Binance and Zhao Changpeng, or to have a powerful holder of U.S. government bonds and bitcoin like Tether.

The weak link in the entire USDT trading chain is also the exchanges that use it for trading.

This is why there was a systematic global attack trying to shut down Binance, and why the United States strongly favors a KYC-based USDC stablecoin system-BlackRock is definitely more angry about Tether than it makes money from it.

Therefore, after careful consideration, a bitcoin spot ETF is a compromise solution- BlackRock aims to be a beneficiary of the flow and fees generated in bitcoin exchanges.

Although the first application may be rejected and ETF approval may be constantly delayed, one thing is certain, BlackRock is already salivating.

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