But who cares as long as you're making money in the short term right?
By venturing into crypto, Blackrock has added what sums up to $117.5 million in fresh revenue, at the time of writing, to its business and this number is only going to get bigger as adoption grows.
I vividly recall Bitcoin's price crashing when it was announced that 11 Bitcoin spot ETFs had been approved by the SEC. There has been lots of speculation since on how these ETFs have attracted billions in inflow yet fail to experience significant price movements driven by it.
Now I'm not here to say or agree with the theories, such as ones suggesting that Coinbase, which custodies Blackrock's Bitcoin ETF balance, was or is printing IOUs to cover its partner's demand inflow. I mean, if we trust the data from Arkham Intelligence, it would appear that Blackrock’s public addresses prove these theories false.
These are things most people want to believe because it makes no sense that millions to billions in inflow are being reported every now and then but there's not much upward price movements in response.
Similar to how Microstrategy buys billions in Bitcoin without much price movements, it would appear that the only logical explanation is that institutions have a system to sweep up assets with minimal or no extra costs.
Mass adoption = Price suppression?
But at least we get stability and deep liquidity right?
Very few people understand how ETFs work and it shows in how they hype up Blackrock when the institution frankly doesn't give a shit about bitcoin beyond charging its sponsor fee and making money from arbitrage through authorized participants(APs) trading(my speculation).
Institutions will heavily promote the idea that buying Bitcoin yourself has high risks and high costs, when in reality that's what buying an ETF is, only that unlike the risks, majority of the actual costs are passed onto the actual Bitcoin market as this is how they can manipulate and profit from the industry whilst potentially simultaneously working up to expand their capital influence in the industry.
Unless you do not understand how Bitcoin and blockchain works, there's nothing high risk or high cost in directly investing in Bitcoin beyond its known volatility.
In this scenario, it would not be advisable to invest in an ETF tracking the price of Bitcoin either because your lack of substantial knowledge on the underlying asset is logical grounds to not be involved, monetarily, at all.
Moving on, the fundamental design of ETFs, when applied to Bitcoin, acts as a market suppressing tool. Bitcoin ETFs charge an expense or sponsor fee on every investment in the fund. This fee is applied to the assets held by the ETF issuer rather than the securities held by the investors in their brokerage accounts.
Sponsor fee: % Charged to BTC, not to USD.
What this means is that issuers such as Blackrock will have to charge and dump a percentage of the Bitcoins the ETF holds to cover the expense or sponsor fee. If you look up the performance of Blackrock's ETF, IBIT, it's up 23.8% in the last year, slightly above Bitcoin's price performance in the same period, which was about 23.3% when I checked.
To the average person just looking at the chart, everything looks good, but the reality is that whilst the security's value is up in the stock exchange, the net asset value(NAV) — on a YTD basis — is down -9.72% as of March 14th.
This is because the fund has sold several Bitcoins from its holdings that are not “retail-driven” since inception.
But what even is NAV?
Net Asset Value (NAV) is the value of an ETF’s underlying assets (Bitcoin in this case) per share. It represents the "true" value of the fund’s holdings at a given time.
If you think about it, people are essentially paying a premium on Blackrock’s Bitcoin's ETF, only to essentially give it capital to short Bitcoin.
Now, it's not shorting in a traditional sense, it's more like DCAing out in profits, tanking the market here and there, despite acquiring those assets are virtually no cost.
It's not a straightforward system and the fee Blackrock charges — 0.25% annually — may appear small until there's 100s of ETF issuers and the assets under management is much bigger in not just asset counts but USD value.
Understanding that the fees are applied on the Bitcoins in holdings and not the USD value also highlights how operations of an ETF can be an avenue for market manipulation to which only the institutions such as the ETF issuer, authorized participants(APs) — who essentially print shares and arbitrage these markets and partner custodians, profit.
Guess who's in the list of APs for Blackrock's Bitcoin spot ETF?
JP Morgan, Goldman Sachs, and more banks and what are the two listed known for?
That's right, criticizing Bitcoin as an investment.
As an ETF holder, you may be making money and getting all the tax benefits, but the issuer is making more at the expense of the underlying asset market and you, also, just in the long term of course.
With 0.25% annual expense fee for Blackrock’s Bitcoin spot ETF, the largest asset manager is positioned to earn $117.5M annually on a flat fee charged on its $47B BTC AUM.
Does any of this mean that Bitcoin's price won't appreciate? Of course not, it just means that ETFs are effective tools for these institutions to max manipulate the markets, make a shit ton of money and expand their capital influence, as mentioned above.
This is how they takeover, pay close attention.