$100K in Seed Funds Received by BlackRock for Bitcoin ETF

BlackRock secures $100K for a Bitcoin ETF, innovates in fee structure, and awaits SEC’s likely early 2024 approval.

BlackRock, the world’s leading asset management firm, has secured an initial investment of $100K for its Bitcoin exchange-traded fund (ETF). This development, disclosed in a recent filing with the United States Securities and Exchange Commission (SEC), underscores the growing interest of financial powerhouses in the cryptocurrency sector.

October 2023 saw an unnamed investor infuse the said amount into BlackRock’s spot Bitcoin ETF, buying 4,000 shares at $25 each. The investor’s role extends beyond mere funding, as they also assume responsibilities as a statutory underwriter for the Seed Creation Baskets. This strategic move by BlackRock demonstrates the increasing legitimacy and institutional acceptance of cryptocurrencies like Bitcoin.

Innovative Fee Structure and Trade Credit System

Diving deeper into the SEC filing, it’s evident that BlackRock has devised a novel approach to managing the sponsor’s fee for the ETF. Rather than liquidating Bitcoin holdings, which could adversely affect the cryptocurrency’s market price, the firm plans to utilize a short-term borrowing system. This involves obtaining Bitcoin or cash as trade credit from lenders, allowing BlackRock to maintain its BTC assets while covering operational expenses.

The structure of this system is particularly intriguing. Settlements for these trade credits are scheduled for the business day following the transaction date. The financing fee for these borrowings includes a fixed 11% rate plus the prevailing federal funds target rate, divided by 365 days. For instance, if the federal funds target rate was 5.5% on November 20, 2023, the financing fee would be determined by adding this rate to 11% and then dividing the total by 365.

BlackRock’s venture into the Bitcoin ETF market is not just a pioneering step for the firm but also a significant development in the cryptocurrency industry. Filed in July, BlackRock’s application is among 13 awaiting the SEC’s verdict. Historically, the SEC has been hesitant to approve spot BTC ETF applications. However, industry experts anticipate a shift in this stance, predicting the SEC’s likely approval of the first spot BTC ETF in the United States by early 2024. This approval could mark a turning point in the cryptocurrency market, potentially paving the way for broader institutional adoption and investment.