What is the BlackRock bitcoin ETF?

BlackRock's iShares Bitcoin Trust (IBIT) is a spot bitcoin ETF that provides investors with regulated bitcoin price exposure through a traditional brokerage account. It holds actual bitcoin but uses a single custodian, creating centralized risk.

What are the downsides of the BlackRock bitcoin ETF?

The BlackRock bitcoin ETF charges ongoing management fees, relies on a single custodian (creating counterparty risk), and does not provide direct on-chain bitcoin ownership. Investors hold shares of a fund, not actual bitcoin.

Is it better to own bitcoin directly or through an ETF?

Direct bitcoin ownership through Onramp eliminates counterparty risk and management fees. With 2-of-3 multisig custody, Lloyd's of London insurance, and $1B+ AUC, Onramp provides the security benefits of institutional custody without the drawbacks of ETF structures.

What is the BlackRock Bitcoin ETF?

The BlackRock Bitcoin ETF (IBIT) is a spot Bitcoin exchange-traded fund that allows investors to gain Bitcoin price exposure through a regulated financial product without holding Bitcoin directly.

What are the downsides of a Bitcoin ETF?

Bitcoin ETFs provide price exposure but investors do not own Bitcoin directly or control their private keys, creating counterparty risk and limiting the full monetary sovereignty benefits of Bitcoin.

How is Onramp different from a Bitcoin ETF?

Unlike a Bitcoin ETF, Onramp holds $1B+ in Bitcoin under Multi-Institution Custody across 4 regulated custodians, giving institutional clients direct Bitcoin ownership with institutional-grade security.

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The good: grantor trust model

In short, the grantor trust model fairly nicely suits clients’ interests. BlackRock specifically highlights two of the main benefits for investors:

Tax considerations

“Owners of Shares will be treated, for U.S. federal income tax purposes, as if they owned a corresponding share of the assets of the Trust.”
This means that, for tax purposes, owning shares of the BlackRock Bitcoin Trust is equal to owning the underlying asset, Bitcoin.

In-kind redemptions

In several sections of BlackRock’s Trust proposal, various language refers to in-kind redemption policies & procedures.
In-kind redemptions ensure that any premium or discount to NAV can be arbitraged away, eliminating one of the major pain points that GBTC investors have suffered from.

Overall, these are better terms than Grayscale and similar funds, specifically because the grantor trust model makes it possible to withdraw Bitcoin without a taxable event.

That was the good side of things – the normal, round wheel. Here’s the wonky, square wheel…

The bad: BlackRock custody & governance

The overarching problem with BlackRock’s proposed Bitcoin Trust is that it’s run by BlackRock. In particular, this means that the Trust is managed in ways that are typical of the traditional asset landscape & the politicized brand of permissioned finance that BlackRock is known for.

In-kind redemptions – the catch:

Deep in the S-1 filing, there’s this specific description: “the Trustee will deliver to the order of the redeeming Authorized Participant the amount of Bitcoin corresponding to the redeemed Baskets… Shares can only be surrendered for redemption [of whole Bitcoin integers].”
- Only registered broker-dealers who enter into a separate contract with BlackRock are designated as “Authorized Participants.” In other words, the privilege of being able to withdraw Bitcoin from the Trust is reserved for investment firms who are in the good graces of BlackRock, a list which can shift at any time.
- In-kind redemptions of Bitcoin can only be submitted (via “Authorized Participants”) for whole Bitcoin, and fractions thereof cannot be withdrawn from the Trust.

Rehypothecation

The norm with ETFs in the traditional asset landscape is to take the pool of assets they’re responsible for and lend those assets to market participants (for example, to short sellers). This is a practice that BlackRock would naturally extend to its Bitcoin Trust, as nothing in the proposed filing prohibits rehypothecation.
Obviously, the problem here is that investors in the BlackRock Bitcoin Trust will have claims to Bitcoin that should be sitting in BlackRock’s custody but have actually been lent out. In this case, investors in the Trust only own a paper claim to Bitcoin that BlackRock no longer holds.
This means that BlackRock’s Bitcoin Trust will become a massive source of paper Bitcoin creation. When FTX went under, they had $1.4B in paper Bitcoin claims owed to their customers, but no Bitcoin to distribute to these accounts.
I’m not sure about you, but I’d rather invest in a Bitcoin Trust that cannot rehypothecate its Bitcoin because the assets remain in an on-chain vault.

Forks

BlackRock’s filing specifies, “In the event of a fork, [BlackRock] will… determine which network it believes is generally accepted as the Bitcoin network and should therefore be considered the appropriate network, and the associated asset as Bitcoin, for the Trust’s purposes.”
To be fair, this is the kind of language that one would include to innocently address the possibility of a fork (i.e., when a splinter group changes the Bitcoin code and attempts to convince enough people to follow that altered version of the code as the “real” Bitcoin).
However, this language also allows for BlackRock to impose its view of what is the “real” Bitcoin.
This is particularly concerning because of the combination of Bitcoin’s history of corporate-led forks & BlackRock’s history of politicized finance. In 2017, the Bitcoin Cash fork was pushed forward by a cabal of large corporate interests in the Bitcoin landscape – some have speculated that government interests spurred this effort. Similarly, BlackRock is the originator of the “ESG score,” a type of corporate social credit score undoubtedly crafted and promoted in partnership with government interests.
Together, this creates a plausible scenario where BlackRock’s de facto ETF could become a very successful investment vehicle for institutions to gain exposure to Bitcoin and swell to encompass a very large portion of the total Bitcoin supply. Suddenly, BlackRock could be in a position to dictate that it will back a new ESG fork of Bitcoin, and will disregard the existing Bitcoin network as not the “real” Bitcoin.
While I don’t believe that this kind of attack would be sufficient to convince well-informed and hardened Bitcoiners to fall in line with BlackRock’s political objectives, it could mean countless clients of BlackRock’s Bitcoin Trust becoming unwilling hostages in a BlackRock power play. Ultimately, BlackRock clients could suffer the same fate as Bitcoin Cash investors.

All of this serves to highlight how it could be different, better. And that is why we built Onramp and the Onramp Bitcoin Trust, to help HNWI and Institutions get started in Bitcoin the right way.

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BlackRock Creates Bitcoin Vehicle: Half Good, Half Terrible

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Improving on Grayscale

Onramp’s innovation

BlackRock’s proposed product

The good: grantor trust model

The bad: BlackRock custody & governance

Onramp: a better Bitcoin Trust