BlackRock Won’t Touch Bitcoin, But They’ll Gladly Sell You An ETF Nightmare

Oh, good.

So BlackRock’s Mark Wiedman – who oversees the firm’s iShares ETF business – sat down for a little chat with Bloomberg TV’s Erik Schatzker on Tuesday, and to all the Bitcoin fans and crypto-crazies out there, I’ve got good news: I’m siding with you on this one.

This is what Wiedman said about the prospect of BlackRock launching a virtual currency ETF:

Got that? Just to reiterate:

We said our whole product line is being products that we would encourage our clients, whether they’re individuals or institutional, to hold in perpetuity. I would not encourage a client to hold bitcoin in perpetuity.

Thanks, Mark but that’s a whole lot of bullsh*t. You run an ETF business. As in “exchange-traded” funds. So no, your “product line” is not designed to be “held in perpetuity.” If it were, then it wouldn’t need to be traded on an exchange with intraday liquidity, now would it?

On top of that, there’s something horribly disingenuous about a guy who oversees such liquidity-mismatched nightmares as HYG adopting a condescending tone towards Bitcoin or any other virtual currency for that matter.

High yield ETFs promise intraday liquidity against an underlying pool of assets that is most assuredly not liquid. If that’s not fraud, then at the very least it’s fraud-ish.

When ETF sponsors push HY and EM debt ETFs to the masses knowing full well that in a one-way market where flows become unidirectional, the liquidity of the ETF will converge with the liquidity of the underlying, they are misleading investors. I’ve got a great piece coming out later this week (featuring Gumby no less) that addresses all of this. In that piece, I quote SocGen as follows:

If the underlying exposure is poorly liquid, ETF may offer superior liquidity, benefiting from the liquidity of the order book and the liquidity of market makers. The liquidity benefit of ETF requires the ETF secondary market (on-exchange + off-exchange) to be balanced, e.g. ETF sellers meeting ETF buyers. In case of a one-way market or a selloff, ETF secondary market liquidity might disappear. ETF liquidity could then become equivalent to that of the underlying assets and could be potentially low if these are poorly liquid, which might induce unexpected liquidity costs for investors.  

So please, BlackRock, do us a favor: drop the self-righteous act when you’re talking about Bitcoin because you’re pushing at least one vehicle that, in a pinch, is just as dangerous as cryptocurrencies and probably a lot more so given the potential for an unwind to pose a systemic risk.

On that note, recall what Carl Icahn told Larry Fink more than two years ago: