FN: BlackRock Effect, Markets Pumping, BTC ETF Analysis

The world’s largest exchange-traded fund (ETF) provider BlackRock announced the formation of a working group to assess potential involvement in Bitcoin (BTC), Financial News (FN) reports today, July 16.

The move furthers a U-turn on BlackRock’s previously critical stance towards cryptocurrency. Following in the footsteps of fellow giant Goldman Sachs, the cross-industry working group convened by BlackRock will among other things focus on whether the company should invest in Bitcoin futures, FN reports, citing “two people familiar with the matter

What are bitcoin futures contracts?

Futures contracts allow two parties to exchange an asset at a specified price at an agreed upon date in the future. Both the CBOE and CME futures are cash-settled, meaning there is no actual exchange of bitcoins involved but rather there’s only a cash payment between the agreed upon price and the actual market price at this future point of time.

For example, Bob buys a 6-month BTC futures contract from Alice with a $15,000 settlement price. Let’s assume that on that day 6 months from now, the actual price of BTC is $18,000. Instead of Alice fulfilling the contract by selling Bob a bitcoin for $15,000 and Bob taking it to an exchange to sell it for $18,000, Alice will simply give Bob the $3,000 difference.

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For investors: There are a lot of institutional investors can’t wait for an opportunity to gain long bitcoin exposure, as up until now they simply didn’t trust the custody and lack of regulation of crypto exchanges. Also, as seen above, bitcoin as an uncorrelated asset can be an interesting addition to almost any portfolio just by the fact that it reduces idiosyncratic risks. This demand might drive the BTC price up significantly