BlackRock, one of the worlds largest asset management giants, submitted a document application for a spot Bitcoin ETF to the U.S. 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 primarily of Bitcoin held on behalf of the trust’s custodian.”
Whether BlackRock is applying for a spot ETF or a trust has caused huge differences and controversy in the crypto industry. Some people think that BlackRock is applying for a trust, but it is different from trust funds such as GBTC issued by Grayscale. , it is more flexible and available for redemption. Another view is that BlackRock is applying for an alternative structure ETF this time, which represents publicly listed Bitcoin trust fund stocks. It is similar to financial institutions such as GBTC. The tools are completely different, but more similar to the many well-known ETF funds managed by GLD and iShares, a subsidiary of BlackRock.
Is BlackRock applying for a spot ETF or a trust? What arguments do analysts, investors and professionals from the crypto industry hold? And from a traditional financial perspective, 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 believesBlackRock applied for a trust, not a Bitcoin ETF.While the two are technically different, especially when it comes to regulatory approvals, the result 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 positive is still the approval of a real Bitcoin spot ETF by the SEC.
Joey Campbell, account manager at Web3 Technology Marketing Studio SCRIB 3, also believes that BlackRock submitted a trust.Tweeted that, “Currently we have some people who are shocked by the nomenclature of ‘trust’ and ‘ETF’, and some say there is no difference. The reason why trusts keep everyone on high alert is because Grayscales Bitcoin Trust is currently trading at a price significantly lower than its net asset value. This is because investors cannot redeem their holdings for BTC. No redemption means that it cannot be bought at a discount in the market and cannot be sold for arbitrage. This is different from BlackRocks trust funds.
“As described in the prospectus, you will see Authorized Participants (AP, Authorized Participants), one of the main participants in the exchange-traded fund (ETF) subscription and redemption mechanism. In essence, AP is the provider of ETF liquidity. (or they can change the supply of ETF shares in the market). Block 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 shares are calculated as approximately $39 million for 40,000 BTC. Then, AP authorized participants can make a profit of 1 million by purchasing the shares, redeeming the 40,000 BTC held by the trust, and then selling them.
Another person who shares the same view is The Bitcoin Layer Market AnalystJoe Consorti ,heTweeted that, This is not an ETF, but a trust. Because it does not have the daily redemption mechanism that ETFs have, it will be added and redeemed from the trust in the form of 40,000 Bitcoins per basket. It will generate the same amount as Grayscale Similar NAV premium and discount issues for the Bitcoin Trust Fund.”
Another view: BlackRock applied for an ETF
Adam Cochran, Partner at CEHVthinkBlackRock applied for an ETF, but many ETFs have alternative structures. Unlike GBTC, BlackRock applied 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.
Bloomberg Senior ETF AnalystEric Balchunas thinks this is an ETF, in response, he tweeted, For those who think BlackRock is applying for a trust rather than an ETF, I want to ask, do you think $GLD is an ETF? In fact, the two are the same. There are many different structures under the ETF asset class. Completely different from $GBTC.
Bruce Fenton, CEO of Watchdog Capital, an SEC registered broker-dealer, believes that what BlackRock submitted is an ETF, and some people think it is a trust, but it is different from financial instruments such as GBTC, and is more like the management of GLD and BlackRocks iShares of many well-known ETF funds.
Considering that BlackRock’s application this time is not a trust in the traditional sense, nor does it fully meet the definition of an ETF, we will list the definitions and main differences between ETFs and trusts below.
What is the difference between ETFs and trusts?
ETFs are investment funds that trade on a stock exchange like individual stocks and are a type of security that hold 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 specific market index, sector or asset. When investors buy an ETF, they are buying shares in an underlying portfolio of assets such as stocks, bonds or commodities. One of the benefits of investing in ETFs is that they provide easy access to a diverse basket of securities. ETFs are also generally very low-cost compared to other types of investment vehicles.
Investment trusts are closed-end investment funds listed on a stock exchange. These trusts are managed by a professional fund manager who is responsible for investing the funds 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 an investment trusts shares 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, meaning the number of shares available can increase or decrease based on demand. Investment trusts, on the other hand, are closed-ended, meaning 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, investment trusts only trade once a day at the end of the trading day. At the same time, the cost structures of ETFs and investment trusts are different. ETFs generally cost less 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 more than US$35 billion in assets. The investment trust is structured as a company - at least in regulatory terms - a closed-end fund. Therefore, there are a limited number of stocks available and their supply and demand largely determines their price.
GBTC shares are not easy to create and there is no active redemption program. This often creates a significant price difference from its net asset value. ETFs, by contrast, allow market makers to create and redeem shares at will. Therefore, if there is sufficient liquidity, there will usually be no premium or discount. ETF instruments are more readily accepted by mutual funds and pension funds because they carry much less risk than closed-end trusts like GBTC.
https://www.etf.com/etf-education-center/etf-basics/etf-vs-trust
