There is a corner of the financial world (a large corner) where products called ETFs are dreamt up and then peddled to the public. ETF stands for Exchange-Traded Fund. The creators come up with an idea to purchase some stuff that is generally related (pharma stocks or agricultural commodities or whatever) and then they say to the public: “Give us money, we’ll buy a basket of this related stuff on public markets, and every day we will aggregate the price of stuff in the basket. You never have to buy the underlying stuff. You have a lower risk because you will have diversified holdings. You just buy our ETF, which trades on public markets too. We take care of the details and our transaction fees to you are ridiculously low. You can exit at any time. Okay?”  

This has been a fabulous business for the last 30 years. The public loved it — low transaction fees, someone else taking care of everything, lowered risk and many appetising baskets of stuff for every conceivable appetite.    

The industry is now worth more than $10-trillion and has had silly growth. 

The biggest player in the market, by far, is BlackRock, the giant US investment house, owning about one-third of all ETFs (according to Statista). It has dreamt up and successfully peddled 175 ETFs in a few decades. In all that time, it has only once been denied an application (due to a new law that came out at that time). It knows ETFs better than anyone. It is richer than most countries. It does not mess around with uncertainty.  

Hold that thought. 

Let’s move on to Bitcoin. The first application for a Bitcoin ETF was made in 2017. Not really “a basket of related stuff”, but just Bitcoin. Even so, low transaction costs, someone else wrestling with the details of the crypto purchase which are, um, a little complicated. But the application was promptly turned down. So was every other application after it. All 37 of them. For opaque and lawyerly reasons which mainly boiled down to the SEC saying, “We hate Bitcoin, go away.” Which led to every major financial institution in the world in the US (and elsewhere) saying, “We hate Bitcoin, go away”, even when their customers pleaded with them to offer them.  

This, as you can imagine, has made some people very unhappy. Demands for the head of Gary Gensler, the head of the SEC, and so on. It seemed to be the nanny state again, telling people what they could value and buy and what they couldn’t.  

And then on 15 June, BlackRock announced that it was applying for a Bitcoin ETF. And every financial institution in the world stopped what they were doing and said, ‘Wait, what?” 

Here is why. BlackRock is ground zero of private institutionalised finance. It is large, feared, followed, hated, admired and never ever ignored. Somewhat like a deity. It simply would not apply for an ETF without already knowing the outcome. So we can assume that the CEO, Larry Fink, (or at least someone at the top) made a call to the SEC and asked what he needed to do to get a successful outcome. And we assume that they all got together in a plush boardroom, very privately and hammered out the details and promised not to tell anyone and drank some brandy afterwards.  

The details of the application are in themselves interesting. Like outsourcing crypto key custody away from BlackRock and to Coinbase, a third party, a publicly traded crypto exchange. And having the Nasdaq stock exchange co-surveille ETF trades with BlackRock for possible market manipulation, one of the big fears of the SEC. And having the right to revoke and redeploy coins under arcane and somewhat hypothetical blockchain based-fracturing scenarios.  

Now here is the interesting part. Within hours of the announcement and continuing for days afterwards, a slew of other Bitcoin ETF applications magically appeared — including Wisdom Tree, Bitwise, Fidelity and Deutsche Bank in Germany. And so the conspiracy machine immediately fired up. This was a conspiracy of old guard elephants, it said. Clears the way for Wall St to own crypto, it said. Engineered by the SEC and cronies to squeeze out the little guys, it said.  

I do not buy this. The way it works, explained articulately on The Pomp Podcast here, is that once someone applies, a clock starts ticking. And no one can jump the queue. So everyone else rushes in, in the hope that they will be second or third, to prevent BlackRock from swallowing all of the many tens of billions which will surely pour into their ETF. Hoping for at least some consolation prize money for coming in close behind the black behemoth. No one can afford not to apply.  

And my second problem is this. Bitcoin is permissionless. Anyone, regardless of wealth or status, can buy in. That’s the deal we made when we bought into it. It is central to its ethos. And so if a big, hairy, rich, capitalist institution decides to jump in and hoover up as many bitcoin as possible, well that’s just part of the deal. They are also allowed in the game. 

And how has the market responded? At the time of writing, Bitcoin was up well over 20% in a few days. Could this be a stampede of the institutions into the space, long hoped for, sparking the biggest crypto bull market ever? 

Maybe, assuming approval is eventually granted some six months or so from now. Which is an eternity in crypto. So, chickens should not really be counted yet, but my money is on Larry Fink knowing something that I don’t. DM

Steven Boykey Sidley is a professor of practice at JBS, University of Johannesburg. His new book, It’s Mine: How the Crypto Industry is Redefining Ownership, will be published in Q4, 2023.