BlackRock's iShares Trust files bitcoin protection ETF prospectus with SEC
The proposed fund would combine three option tranches with fixed-income investments, while its management fee remains blank.
Julian Okafor
A proposed bitcoin fund would exchange some potential gains for a strategy seeking to cushion losses. BlackRock, Inc. NYSEBLK, the investment manager behind iShares, is proposing a fund that would hold 3 overlapping sets of options.
Its iShares Trust filed a preliminary prospectus with the U.S. Securities and Exchange Commission on Monday for the iShares Bitcoin Managed Protection ETF. The plan combines purchased and sold options with fixed-income investments, but leaves the management fee and total annual operating expense blank.
BlackRock shares fell 0.84 per cent to US$1,124.60 on the NYSE at Monday's close, timestamped 4:00 p.m. EDT on Google Finance's NYSEBLK page.
The prospectus says shares cannot be sold before the registration statement becomes effective and that the SEC has neither approved nor disapproved them. It proposes effectiveness 75 days after filing, while leaving the listing exchange and precise prospectus date unfilled.
Three Option Tranches Would Limit Participation In Gains
The proposed fund would seek exposure to the iShares Bitcoin Trust ETF and similar bitcoin reference assets. iShares Bitcoin Trust ETF NASDAQIBIT, BlackRock's existing bitcoin investment trust, seeks to reflect bitcoin's price and reported US$65.34 billion in net assets as of Oct. 16.
IBIT closed at US$46.30 on Nasdaq on Monday, up about 0.33 per cent, according to Google Finance's NASDAQIBIT page at 4:00 p.m. EDT. That is the traded price of the reference product, separate from the proposed fund's future terms.
The Oct. 19 prospectus describes buying call options in three overlapping tranches to establish bitcoin exposure. It also describes selling options in three tranches to help offset the cost of those purchases.
Selling the options limits participation in increases beyond their strike prices, according to the prospectus. The same structure that helps finance exposure therefore places a ceiling on the gains available from those positions.
"The Fund seeks to provide upside exposure to the iShares Bitcoin Trust ETF (IBIT) and/or similar bitcoin exposure up to an approximate limit, while seeking to provide a level of downside protection," iShares Trust says in its Oct. 19 prospectus.
The proposed cash management strategy would invest in fixed-income instruments to generate interest income. The filing says that income would help offset option costs and provide a level of protection against potential fund losses.
That description sets out an investment objective rather than a guaranteed repayment of principal. The preliminary prospectus describes an approximate upside limit and sought downside protection, so neither should be represented as an unconditional investor entitlement.
The Fee Table Leaves The Full Cost Undetermined
The Oct. 19 fee table leaves both the management charge and total annual operating expenses blank. Its estimate of zero other expenses therefore does not establish a zero-cost product or a final price for the strategy.
BlackRock Fund Advisors would pay operating expenses subject to specified exceptions, including management fees, interest, taxes and portfolio transaction costs. The prospectus also warns that brokerage charges paid by investors may fall outside the displayed expense table.
Portfolio turnover can create transaction costs and, in taxable accounts, higher taxes, the filing says. Those costs affect performance even though they are excluded from the annual operating expense table and its illustrative ownership-cost calculation. The fund has no reportable turnover because it is new, and the example of future ownership costs leaves the dollar amounts blank.
IBIT's product page, read Oct. 20, states a sponsor fee of 0.25 per cent, providing an existing cost benchmark for bitcoin exposure. The new fund's blank management-fee field prevents a complete comparison between that charge and the proposed protection strategy.
The Filing Proposes Effectiveness After 75 Days
The filing arrives alongside continued corporate purchases of bitcoin. Strive, Inc. NASDAQASST, the Dallas bitcoin treasury company, reported on Oct. 19 that it held 36,818 bitcoin as of Oct. 16.
Mugglehead's report on Strive's purchases and warrant exercises traced how additional coins accompanied an expanded common share base. BlackRock's proposal presents a different set of terms for bitcoin exposure: option costs, limited upside and a protection objective.
Read more: Strive reports US$100M bitcoin purchase after warrant exercises
The Oct. 19 registration amendment selects effectiveness 75 days after filing, placing its proposed checkpoint on Jan. 2, 2027. The preliminary prospectus still leaves the exchange blank, so that calculated date does not establish when investors could first trade the fund.
