Blackrock bitcoin ETF - the specifics
On the surface, it looks like the Blackrock bitcoin ETF will be a hot topic. Specifically, it will allow you to buy bitcoin within a registered vehicle and without the “burden” that comes with pure bitcoin ownership and custody. You’ll likely be able to call your stock jockey and say “add bitcoin to my portfolio” and the stock jockey will click a few buttons and voila! Some fake bitcoin will appear in your portfolio.
The reason I say “fake bitcoin” is because this will simply be price exposure (less the fund fee) with the added benefit of government tax programs (if you buy the fund through your 401k or RRSP/TFSA in Canada). Of course, the benefits are hard to ignore. Registered tax vehicles are often sheltered from future taxes, and you have someone else handling all the nitty gritty work that comes with storing bitcoin.
Bitcoin - the specifics
What nitty gritty you might ask? Well, lots. Buying bitcoin, if you’ve never done so in the past, can actually be a bit of work to set up. From start to finish the steps to buy real bitcoin on the blockchain look like this:
- Set up a bitcoin wallet
- Create an account
- Verify your identity
- Send money
- Buy bitcoin
Now that you own bitcoin you should worry about how that bitcoin is stored. Are your private keys secure, what about your wallet and TXID management, do you remember how to send bitcoin? What about taxes when you sell. You have all of this burden without your dedicated fund manager holding your hand and walking you through the process.
This burden is why lots of people leave their bitcoin on exchanges. It removes the burden of custody. This, however, is very dangerous. And it’s possible that the Blackrock ETF is actually more dangerous…
Dangers of a bitcoin ETF
If this is your first time reading a Bitcoin Well blog post, welcome. We are big on financial sovereignty, self custody of bitcoin and advocating for financial independence, part of which relies on ownership and control of money as well as the amount of money someone has. It goes without saying that if you buy a Bitcoin ETF you will not own those bitcoin.
In fact, it could create a massive honeypot if the fund is wildly successful. This would create danger #1:
The honeypot
We know that Coinbase Custody is suspected to be their coin custodian. This is good, it means they likely plan to actually buy the bitcoin they are giving you price exposure to. However, nobody is immune to hacks. The security in Coinbase is likely better than your personal security at home, however the prize for cracking the Coinbase security is massive, and only getting bigger if Blackrock stores their coins there. This isn’t the only danger, but it is the most apparent.
The confiscation
Next on the list of dangers we have government overreach or confiscation. This happened in 1933 where the government demanded all citizens deposit their gold and be paid “fair market value” of that gold. Of course in 1933 the world was a lot bigger. You couldn’t jump on a PJ and fly around the world. You couldn’t communicate and see what other governments were doing. You couldn’t store your gold on an SD card. But today, you can.
If you are holding bitcoin in a fund you do not have the option to flea or opt out of the lunacy. You are exposed to the decisions of the fund. And trust me when I tell you, the decision of the fund will always be “yes Mr. President”.
The conspiracy
Before we dive into the conspiracy (because who doesn’t love a good conspiracy?) please firmly place your tinfoil hat or scroll to the bottom of this post where I wrap the whole thing up with a bow and viable solution. There is a chance that Blackrock having access to tons and tons of bitcoin could give them the ability to manipulate the market. Or worse, work with the government to manipulate the market. The government knows that bitcoin is a threat to their control over the money. Bitcoin offers the greatest opportunity to separate money from state. The state probably doesn’t want that.
If Blackrock, holding your financial exposure to bitcoin decides to “fork the chain” (something anyone can do) and then only honour their forked version, which would put a short term black mark on “original bitcoin”.
Benefits of bitcoin
It won’t surprise you to hear that I am going to advocate for self custody of bitcoin. Yes, you need to learn some things (we’re here to help!). Yes, you need to make sure you are diligent with your security. However, the unknown counterparty risk is too great. We are a witness to the greatest financial shakeup in history. You have a duty to your financial well-being to learn how to self custody your bitcoin.
It is my hope that the Blackrock bitcoin ETF will spark interest in bitcoin and then act as someone’s first step into bitcoin. From there they will hopefully start down the rabbit hole, learn about the philosophy I am talking about here, and sell their fund in favour of real bitcoin, on the blockchain.
In the meantime, stick to your schedule. Buy bitcoin often, and in small amounts. Store them securely and…
Stay sovereign 🫡
Adam
