BlackRock BTC ETF relies on Bitcoin miners.

BlackRock BTC ETF relies on Bitcoin miners.

The Rise of a Bitcoin Spot ETF: A Triumph for Miners and the Blockchain Industry

All eyes are on BlackRock. After last year’s carnage of FTX and other high-profile fallouts, the crypto industry is pinning its hopes on legacy finance muscling through the long-awaited Bitcoin spot ETF. In addition to BlackRock, Fidelity and Ark Investments have filed for Bitcoin spot ETFs, paving the way for institutional capital to flood into the digital asset. Crypto exchanges like Coinbase (who will be BlackRock’s surveillance sharing partner for the ETF) may clash with the SEC, but Wall Street routinely works with the agency to push through these financial products. While it isn’t a guarantee we will see a Bitcoin spot ETF soon – even BlackRock isn’t immune to the SEC’s stonewalling and its surveillance partner remains under investigation – it is looking increasingly likely, especially with the pressure of multiple firms coinciding with the momentum from Ripple Labs’ partially successful lawsuit.

The arrival of a spot ETF would be a milestone for crypto and is made possible by the miners who have ensured the integrity of the Bitcoin network. From early test validations following the publication of the Bitcoin white paper to the buildout of entire operations across the United States, Asia, and Europe, the past decade has been fascinating for mining, and miners again find themselves at a crucial inflection point to shape the industry as stakeholders.

Adoption is bittersweet

In the years leading up to the recent flurry of spot filings, publicly-traded mining companies were how institutional investors gained exposure to Bitcoin. Due to the lack of regulatory clarity for digital assets, investors opted for traditional financial vehicles with stock offerings and compliance requirements, which also alleviated the burden of self-custody. While several other low-maintenance options existed for exposure to Bitcoin, including purchasing Microstrategy stock or the Grayscale Futures ETF, miners were always closer to the core product.

The inevitable spot ETF backed by a major financial institution like BlackRock or Fidelity is bittersweet. Approval of any one of these ETFs by the SEC would signal a regulatory green light while providing investors with direct exposure to Bitcoin – there would likely be a price increase in the underlying asset which miners have spent this decade building substantial positions in (i.e. everyone involved makes money). But a spot Bitcoin ETF also raises the uncomfortable prospect of outflows in capital from mining stocks to Wall Street financial products, wherein banks enter a more favorable regulatory climate and benefit enormously from operating expense ratio (OER) fees built into the ETFs. As I highlighted in a OpEd for CoinDesk this spring, miners will meanwhile face a lower-margin environment with the “halvening” event next year set to reduce the amount of mineable Bitcoin by 50%. There is irony in miners building the world’s first decentralized monetary system — assuming all the risk for over a decade while dealing with hostile regulatory scrutiny and attacks from lawmakers — only to turn it over to Wall Street for a last-minute assist.

The next era of mining

Miners, however, have always been aware of the timeline surrounding mineable Bitcoin as first outlined in Satoshi Nakomoto’s white paper. The beauty is that we have created a playbook for bridging emerging technology, institutional investment, and alternative sources of energy, while providing economic opportunities to the communities who welcome it. While Bitcoin’s “proof of work” system may seem limiting on first glance, miners have used it as the basis for our own decentralized network with footprints across multiple jurisdictions, instantly adaptable to regulatory tailwinds and technological advancements.

A Bitcoin spot ETF validates the validators. Its arrival would be a sign that securing the network always had global significance, and that there is even more of a role to play as promising new technology finds its place in the global economy. As Wall Street and regulators debate the specifics of a spot Bitcoin ETF, miners are developing profitable business models with Ethereum and Artificial Intelligence, making the ETF debate already seem dated. I noted in another CoinDesk piece from earlier this year how our company, Bit Digital, had developed an Ethereum “Flywheel Model” wherein mined Bitcoin can be converted into Ethereum and then staked for rewards.

Mining infrastructure such as alternative energy sources, cooling systems, and computing systems likewise are being used to process machine learning workloads. Those who would call this a “pivot” misunderstand the fluidity of mining, and how the sector has grown beyond Bitcoin to offer investors exposure to Ethereum and AI, while incorporating emerging technologies requiring energy output into a sustainable model. Again, miners are innovating and tapping into the promise of new markets and technologies, as Wall Street plays catch-up years after the fact.

A spot Bitcoin ETF heralds a triumph for the guardians of the network. Our full power is only just being realized.

Author’s views are his own and do not necessarily reflect the views of his company.

Edited by Ben Schiller.