BlackRock bitcoin ETF: The wolf enters the henhouse?

Institutional-scale bitcoin investment in America — the dream of many early digital gold asset backers — is becoming a distinct possibility. 

But for some, an institutional move into bitcoin is nothing more than a dystopian nightmare, where a noble battle against the corruption of the fiat monetary system ends with the rich, once again, getting richer.

The application for an ETF by the largest asset manager in the world, BlackRock, could not have happened at a stranger time in cryptocurrency’s regulatory history. 

Just as the SEC is hunting down Coinbase for allegedly flouting securities laws, BlackRock is requesting the SEC’s approval for a spot bitcoin ETF — with Coinbase as its custodial partner.

It should be no surprise that BlackRock would choose to work with Coinbase for its ETF, as they have long been strategic partners. Still, the entry of old-world wealth into the bitcoin realm is raising red flags in the community. 

On a recent On the Margin podcast (Spotify/Apple), Mark Yusko expresses some of the fears of handing over the keys — both figuratively and cryptographically — to the institutions. 

Bitcoin community seems unenthused

While the notion of large-scale, heavily regulated investment entering bitcoin appears on the surface to be highly bullish for the industry, not everyone is enthused. Concerns about some sort of hostile takeover are swirling in the community.

The founder of Morgan Creek Capital Management says Xapo, the institutional-scale crypto custody tool that Coinbase acquired in 2019, could come into regulatory play.

“What if,” he asks, BlackRock can “take over this storage unit?”

BlackRock would then hold a significant portion of crypto assets in America, he says. “And if they have the bulk of it,” regulators could then shut down the Coinbase exchange as an SEC-alleged “unlicensed casino” and hand the Xapo unit over to BlackRock.

Host Ippolito adds that the response from the Bitcoin community has been “pretty roundly negative” regarding the ETF application.

“In the filing, there’s a little paragraph about what BlackRock would do in the event of a hard fork,” Ippolito says. “BlackRock is going to have to make a decision.”

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“In the event of a hard fork,” Ippolito explains, “there will be two different copies of Bitcoin.” As has happened in previous forks, one of the two will be selected as the canonical chain. 

“And BlackRock’s gonna have to make a decision about that.”

Fears swirl around the possibilities of BlackRock closing off access to what some would perceive as the preferred fork, but Ippolito is concerned with “the Bitcoin community’s pushback.”

“It makes me think that they don’t really understand social consensus,” he says. “If you want Bitcoin to keep going up and be widely adopted you need larger and larger buyers.”

Yusko responds to the community’s backlash against undesirable money entering the scene, “You want any and all fiat of any kind in any variety to convert to bitcoin because the bigger the network, the bigger the safety, security, the more adoption.” 

“That’s the only way the value of a network goes up.”

Short the future, long the physical

Having said that, Yusko admits it’s “hypothetically possible that since November of last year, when the futures-based ETF was issued,” that large institutions like JPMorgan and Blackrock have been “shorting the shit out of bitcoin.”

“In fact, it’s highly likely,” he says. “We have proof in the gold market that they do. Every year, they make billions of dollars shorting the future and going long the physical.”

JPMorgan can pay a billion dollar fine for market manipulation, Yusko says, but make $20 billion in the process. “So that’s 5%. Who cares? It’s the cost of doing business.”

Still, it’s not all dark clouds for Yusko. He sees the BlackRock filing as a potential turning point in the market from bearish to bullish. “We said on this show that crypto summer would start on June 15.”

“And BlackRock files the papers on June 15. That is just dumb luck. And it’s possible we made the bottom.”

Yusko remains confident in bitcoin’s future, although he expects things to be messy for a while. 

“JPMorgan, BlackRock and all of the controllers of the money and power felt threatened — as they should have — by a disruptive innovation that will replace them. The infrastructure of trust will be replaced by the infrastructure of truth.”

“But man, the war is gonna be bloody.”

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