BlackRock Updates Bitcoin ETF Filing, Introducing New Language Highlighting Quantum Computing Risks

This revision, filed on May 9, reflects growing industry awareness of how advanced computing technologies could impact cryptographic systems used in digital assets.

BlackRock (NYSE:BLK) has updated the S-1 registration statement for the iShares Bitcoin Trust (NYSE:IBIT) to include a section on the potential risks posed by quantum computing.

The new language, filed on Monday, is part of a broader industry discussion about how emerging technologies could impact the cryptographic systems used by digital assets.

What Happened: In a filing with the Securities and Exchange Commission, BlackRock pointed out that significant future advancements in quantum computing could compromise the security underpinning Bitcoin (CRYPTO: BTC).

If quantum technology were to progress far beyond its current capabilities, it might render the cryptographic algorithms used by Bitcoin obsolete. This could enable malicious actors to exploit vulnerabilities, such as gaining unauthorized access to wallets that store Bitcoin for the trust or its investors.

While noting that quantum computing is still under development and its full capabilities are uncertain, BlackRock highlighted the importance of disclosing any theoretical threats that could affect the performance or security of its crypto investment products.

“It is possible that new technology, such as large-scale quantum computers, could be used to break the cryptographic algorithms used to secure the Bitcoin network or to forge the private keys used to authorize Bitcoin transactions,” the asset manager stated in the filing.

The asset manager also updated the S-1 application for the iShares Ethereum (ETH) Trust to include plans to support an in-kind creation and redemption structure.

This model would allow investors to exchange shares of the iShares Ethereum ETF (NYSE:ETHU) directly for Ethereum (CRYPTO: ETH) or vice versa, eliminating the need for cash transactions.

The move is seen as a logical step towards optimizing the ETF's efficiency and minimizing unnecessary costs.

It would also circumvent the requirement to convert crypto into fiat currency, which is currently mandated by the SEC for the cash-based structure used by issuers.

This approach could help issuers limit price slippage and save on trading fees.

It is worth noting that the SEC has yet to approve in-kind (or "physical") redemption models for crypto ETFs, but industry analysts anticipate this to happen later in 2023.

“Eric Balchunas & I expect SEC approval for In-kind at some point this year…Notably, the first application for any of the Ethereum ETFs to apply for In-kind creation/redeem has a final deadline around ~10/11/25,” noted Bloomberg ETF analyst, James Seyffart.

What Else Is Known: IBIT, the largest spot Bitcoin ETF in the U.S., has been a subject of significant interest.

It has now recorded 19 consecutive days of inflows, amassing more than $5.1 billion during the reporting period.

As of Monday, May 8, IBIT’s net inflows for the past 30 days reached $6.66 billion, making it the ETF with the highest net inflows over 30 days.

Earlier this year, BlockRock began meeting with the SEC to discuss crypto ETF staking and securities tokenization.

The world’s largest asset manager is also preparing to launch an entry-level ETF that will invest in the iShares Core U.S. Aggregate Bond ETF (NYSE:AGG).

This new ETF will be structured as a single-factor ETF and will serve as a building block for a broader fixed-income ETF product suite that BlackRock plans to introduce later this year.

What’s Next: Despite the potential theoretical risks highlighted by BlackRock, it’s crucial to note that quantum computing technology is still in its early stages of development.

While there has been significant progress in recent years, especially with the development of superconducting qubits and topological matter, quantum computers capable of posing a threat to cryptocurrencies are still a subject of speculation.

Despite the rumors of FTX’s collapse impacting the crypto market, the crypto market, specifically Bitcoin, has shown resilience, and institutional interest in cryptocurrencies continues to grow.