Financial giants flock to Bitcoin ETFs, making money is the real business

Financial institutions are looking at cryptocurrencies in a new light and are already flocking to them.

Last week, the news that BlackRock (BLK) submitted an application for a spot Bitcoin exchange-traded fund (ETF) ignited industry enthusiasm. This week, another large asset management company Invesco (IVZ) re-applied for a spot Bitcoin ETF. Large ETF provider WisdomTree also re-submitted the same application (WisdomTree's application was initially rejected by the SEC in 2022).

Other institutions also rushed to grab headlines, with EDX Markets (EDX), a crypto exchange backed by Fidelity, Charles Schwab and Citadel Securities , launching in the United States and Deutsche Bank applying for a digital asset license in Germany.

So yes, institutions are back. But why did $10 trillion asset manager BlackRock and $1.5 trillion asset manager Invesco decide to launch a spot Bitcoin ETF at this juncture? Many people have proposed conspiracy theories (some of which seem plausible).

For example, BlackRock is rushing to support Coinbase for some reason, or it is taking action on behalf of federal agencies to prevent ordinary users from fully controlling their Bitcoin, or Wall Street giants are not allowing crypto companies to get too far ahead.

There are many similar "conspiracy theories", but there is a more convincing one: capital never goes against money, and launching a spot Bitcoin ETF is a way to make money .

Take BlackRock, for example. BlackRock has clients (it does), those clients have money they want to give BlackRock (they do) and are willing to pay BlackRock to take care of it, and BlackRock listens to its clients, so it’s easy to believe that there is some demand for “cryptocurrency exposure” that makes it worthwhile to provide crypto exposure to clients. In exchange, of course, BlackRock charges a fee.

It’s another that BlackRock sees a spot Bitcoin ETF as the path of least resistance to provide exposure to its clients. BlackRock will only profit from the ETF if it is approved. So far, about a dozen spot Bitcoin ETF applications have been rejected by the SEC (although there is reason to believe that BlackRock’s latest application will meet the market surveillance and disclosure requirements required by the SEC).

To be sure, the SEC isn’t deeply hostile to Bitcoin; its problem is with “securities” masquerading as cryptocurrencies.

In addition, BlackRock executives were not fond of cryptocurrencies, but time can change a lot of things.

In July 2018, BlackRock CEO Larry Fink declared in a Bloomberg TV interview that clients have zero interest in cryptocurrencies. When asked if it was necessary to prepare for the day when clients wanted access, Fink replied, "Not at this time." A few months ago, Larry Fink also called the Bitcoin protocol a "money laundering index," arguing that "Bitcoin just shows you how much money laundering demand there is in the world."

Fast forward to June 2023, and Larry Fink appears to have gone from Bitcoin skeptic to crypto industry savior, and if the spot ETF is given the green light, other BlackRock-sponsored crypto products are expected in the future.

The SEC has up to 240 days to decide on BlackRock ’s application, according to Bloomberg Intelligence, and Nate Geraci, president of The ETF Store, noted that, in fact, the investment giant “may know something that the rest of us don’t” about what the SEC is thinking.

Capital is profit-seeking, and if BlackRock (arguably the most powerful company on Wall Street) was not sufficiently certain, it would not have applied for this spot Bitcoin ETF.