Bitcoin ETF Coming? Coinbase, BlackRock Announce Cryptocurrency Partnership

Bitcoin wallet provider and cryptocurrency exchange Coinbase is considering to develop a Bitcoin exchange-traded fund (ETF) in partnership with BlackRock, the global investment management corporation based in New York City, according to a report Thursday. The proposed Bitcoin ETF would allow retail investors to gain access to the cryptocurrency market.

“Coinbase has held conversations with people from BlackRock’s blockchain working group to tap into the firm’s expertise at launching exchange-traded products,” Business Insider reported.

An ETF is a marketable security that tracks either an index of funds, commodities, or a basket of assets. A Bitcoin ETF would allow investors to purchase Bitcoin through funds listed on a regulated stock exchange. Like the Bitcoin futures contracts that came before it, a Bitcoin ETF is seen by many as the platform that will encourage institutional investors to cross over to the cryptocurrency market.

In July, Financial News reported that BlackRock — it manages assets worth $6.3 trillion — had begun discussing whether to invest in Bitcoin futures and was also exploring other ways to gain exposure to cryptocurrencies and blockchain technology. In an interview with Reuters, BlackRock CEO Larry Fink said the firm had set up a working group to explore Bitcoin and other cryptocurrencies. “We are a big student of blockchain,” Fink said.

The Securities and Exchange Commission (SEC) has already rejected a number of Bitcoin ETF proposals. The notable ones are the fund proposed by Tyler and Cameron Winklevoss (Founders of Gemini, a New York-based cryptocurrency exchange), ProShares that tracks Bitcoin futures contracts, and another from GraniteShares (fully funded ETF Company). The reason for rejection of the proposals was mentioned in the rejection document presented by the SEC under the heading “Protecting Investors and the Public Interest.”

Under the analysis section, the document said: “The Commission acknowledges that, compared to trading in unregulated Bitcoin spot markets, trading a Bitcoin-based ETF on a national securities exchange may provide some additional protection to investors.”

The SEC also expressed concern about fraud and manipulation in Bitcoin markets. It said NYSE Arca (first all-electronic exchange in the U.S for ETFs and equities), which filed the ProShares application, had not met security requirements "to prevent fraudulent and manipulative acts and practices. Among other things, the Exchange has offered no record evidence to demonstrate that Bitcoin futures markets are markets of significant size.'"

Two separate Bitcoin ETF proposals – one each by money management firm VanEck and cryptocurrency startup SolidX – are being examined by the SEC. If even one of them is approved, it could lead to a fresh injection of investor cash into Bitcoin. The interest by Coinbase and BlackRock in a Bitcoin ETF means there may still be hope for the investment tool even if the SEC rejected the VanEck and SolidX proposals.

Earlier in August, Coinbase had also announced the company would decrease its Index Fund’s annual management fee for all new and existing investors from 2 percent to 1 percent "in order to attract investors who are familiar with lower-fee index funds in other asset classes. This will help introduce a new category of institutional investors into the cryptocurrency space."