BlackRock Files Bitcoin ETF Offering Built-In Downside Protection

Asset manager BlackRock aims to offer Bitcoin investors something regular spot ETFs do not, which is a way to protect against losses when prices drop.

The asset management firm has filed with the United States Securities and Exchange Commission (SEC) to create the iShares Bitcoin Managed Protection ETF. The fund will use options linked to its existing iShares Bitcoin Trust ETF (IBIT).

The filing, however, notes that the protection comes with a trade-off: while it can help reduce losses, it may also limit potential gains.

BlackRock Files Protective Bitcoin ETF

Under the proposed structure, the fund will utilize three sets of options, which are contracts designed to help manage the potential earnings or losses for investors. To reduce the cost of these contracts, the fund will sell some call options, which may cap profits if bitcoin’s price exceeds certain levels.

Each set of options aims to protect against approximately 10% of losses based on Bitcoin’s reference price. This is important because BTC’s price can drop sharply, potentially erasing gains, particularly for those who invest when prices are high.

Rather than simply tracking bitcoin’s price, the fund will concentrate on mitigating investor losses during market downturns. However, it is important to note that it will not completely prevent losses, and the actual results will depend on market conditions and the effectiveness of the options strategy.

New Fund Blunts Bitcoin Volatility

The proposed ETF will take a different approach compared to regular spot Bitcoin funds. Instead of holding bitcoin directly, it will mainly use options linked to IBIT and also hold cash, money-market funds, short-term government bonds, and investment-grade fixed-income securities.

These investments could earn interest income to help cover costs related to options, but they will not eliminate investment risks. According to the filing, the fund will have overlapping groups of options with staggered monthly start dates to keep up with the strategy as individual options expire.

If launched, the product could attract investors seeking exposure to Bitcoin without having to navigate significant market declines. Meanwhile, BlackRock plans to use the ticker symbol PBIT for the ETF; however, the registration statement is still undergoing the SEC review process, and filing it does not guarantee that the fund has been approved to launch.

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