IBIT: BlackRock’s $3B ETF Atop the Spot Bitcoin Pile

IBIT: BlackRock’s $3B ETF Atop the Spot Bitcoin Pile

Liquidity and a household name don’t remove risk when investing in crypto.

AndrewHecht310x310
|
Reviewed by: Kent Thune
,
Edited by: Ron Day

Among the pack of 11 spot bitcoin exchange-traded funds that began trading last month, the iShares Bitcoin Trust (IBIT) has landed at the top by pulling in $3 billion, more than any of its rivals. 

Of course, massive liquidity doesn’t necessarily mean low volatility. That the fund is managed by BlackRock Inc., the world’s biggest ETF issuer, doesn’t reduce the underlying asset’s riskiness.  

Yes, BlackRock owns the funds’ bitcoin. And yes, BlackRock holds trillions of dollars in assets and partners with central banks, sovereign wealth funds and finance ministries around the world.  

It’s still bitcoin, a new currency that’s $24,000 below its all-time high.  

Can Spot Bitcoin ETFs Bring BTC Into the Mainstream?

Still, IBIT and other spot bitcoin ETFs are giant steps in bringing the alternative asset class into the mainstream. Allowing investors direct exposure to the leading cryptocurrency circumvents many factors that stood as roadblocks.  

Spot Bitcoin products are custodians, enabling market participants to own crypto without the custody concerns of holding them on unregulated platforms or in computer wallets with complicated access codes. Moreover, the ETF products allow for greater liquidity for entering or exiting risk positions on the long or short side of the volatile market. 

Blackrock, as the world’s biggest asset manager with a market cap of over $115 billion, carries a bit of weight. Its iShares is the leading ETF brand in the United States, with more than 400 funds products and $2.5 trillion in assets under management.  

After the U.S. SEC approved spot Bitcoin ETFs on January 10, it is no surprise that Blackrock rolled out IBIT to bite off a piece of the spot Bitcoin ETF pie.  

IBIT’s Profile States It Tracks Spot Bitcoin 

IBIT is trading at around the same price where it launched, $24.66, and millions of shares trade daily. On February 2, over ten million shares changed hands. IBIT charges a 0.12% management fee.  

IBIT’s Bitcoin is held in cold storage, a safeguarding method “more resistant to hacking.” IBIT is one of the spot Bitcoin ETFs that allows exposure for investors and traders through standard equity accounts.  

Volatility in Bitcoin since IBIT Came to Market 

The leading cryptocurrency has been volatile since the SEC approved spot Bitcoin ETFs. 

Bitcoin fell 21% from the Jan. 11 high of $49,021.86 to the Jan. 23 low of $38,589.97 low. After reaching the most recent bottom, it recovered 13% to a high of $43,772.49 on January 30.  

IBIT fell 27%, from $30 to $22.02, during the same Jan. 11-Jan. 23 period, before jumping 13% to $25.00 per share on January 31. 

The early underperformance during the correction was likely a function of the first trading day. Meanwhile, since Bitcoin trades around the clock and IBIT only trades during U.S. stock market hours, IBIT and other spot Bitcoin ETFs will likely miss highs and lows when the U.S. stock market is not operating.  

Funds Are Flowing Into IBIT But Risk Remains

Since IBIT began trading in mid-January, it has experienced significant fund inflows. The etf.com Fund Flows Tool illustrates nearly $2.99 billion flowed into IBIT over the first 24 trading days.  

While IBIT and other new spot products go a long way to validating Bitcoin as a liquid and regulated asset class, Bitcoin remains a highly volatile and dangerous asset. The potential for significant rewards comes with the risk of total loss.  

As the asset class’s value rises, the risk of governmental intervention that could destroy value increases. Governments control the money supply, so they will not likely allow cryptos to interfere with control of the purse strings, a critical factor for governmental power.  

Only invest capital you are willing to lose, as explosive potential comes with implosive risks.  

Andrew Hecht is a Nevada-based writer and analyst covering stocks, bonds, foreign exchange, cryptocurrency and raw material markets. He has over four decades of experience in markets across all asset classes, concentrating on commodity markets. Hecht was a senior trader at Salomon Brothers in the 1980s and 1990s, running sales and trading businesses. In 2013, McGraw Hill published his book, “How to Make Money in Commodities."