Since the Bitcoin ETF was approved in the US in Jan 2024, institutions like Blackrock are buying a lot of bitcoins from the exchanges that rings the alarm bell on their impact on the Bitcoin Network.
BlackRock, the world's largest asset manager, is buying a lot of Bitcoin but they cannot buy all of it since it's impossible because 20% of the supply is already lost forever. Instead, Blackrock has launched a spot Bitcoin exchange-traded fund (ETF), which allows investors to gain exposure to Bitcoin's price movements without directly owning the bitcoins. Now this could be an important use case for some people who have their money locked up in the banking system that they can't get out to buy the bearer asset but with the ETF now they can simply convert the money onto it so they can at least get the bitcoin price exposure.
Here are some key points about BlackRock's Bitcoin ETF:
- *It is an IOU so it's a promess that they have the bitcoins they say they have, you don't own the real thing, it's only an exposure to price.
- *Increased adoption(TradFi): BlackRock's participation in the cryptocurrency industry through an ETF may attract more institutional and retail investors, increasing the legitimacy of Bitcoin as a form of investment in the eyes of some wallstreet investors.
- *Liquidity and price impact: The ETF may give investors a regulated and accessible way to get exposure to Bitcoin, increasing market liquidity and potentially affecting its price.
- *Regulatory attention and investor protection: BlackRock's submission and approval for a Bitcoin ETF draws regulatory attention, emphasizing the importance of clear rules and safety nets for the cryptocurrency sector .
- *Market risk and volatility*: While a Bitcoin ETF may increase market liquidity and mainstream involvement, it may also raise market risk and volatility.