BlackRock has filed plans for a bitcoin exchange-traded fund (ETF) that would seek to limit losses during market falls, while also capping some potential gains.
The proposed iShares Bitcoin Managed Protection ETF would trade under the ticker PBIT. BlackRock, the world’s largest asset manager, submitted a registration statement to the U.S. Securities and Exchange Commission (SEC) on 19 October.
Unlike traditional spot bitcoin ETFs, PBIT would not hold bitcoin or bitcoin exchange-traded products directly. Instead, it would seek returns linked to the iShares Bitcoin Trust ETF (IBIT), or similar bitcoin-related assets, using options contracts and fixed-income investments.
The structure would allow investors to gain bitcoin exposure through an ETF without owning the cryptocurrency. However, BlackRock said shareholders could still lose some or all of their investment.
PBIT would generally use three overlapping groups of options contracts, known as tranches, with each group beginning in a different month. Each tranche would combine purchased call options, which give the holder the right to buy an asset at a set price, with sold calls that restrict gains above a specified strike price.
The purchased calls would generally have strike prices around 10% below the reference asset’s value when each tranche begins. This would initially seek to limit losses to approximately 10% of that starting value for each tranche, before expenses.
That figure would not represent a guaranteed maximum loss for investors. The relevant thresholds could change, and a loss calculated from a higher market value could exceed the original 10% level. The fund expects to use Flexible Exchange Options, or FLEX Options, which are exchange-traded contracts with terms that can be customised. Its positions could also be altered as market conditions change.
The strategy would include cash, money market funds, short-term government obligations and investment-grade fixed-income securities. Interest earned from those assets could help pay for the options and offset part of any losses.
Selling call options would generate income to help fund the protection strategy, but would also limit returns if bitcoin prices rose sharply. As a result, PBIT could lag behind bitcoin in rising markets, while volatility and trading costs could reduce the effectiveness of its downside protection.
The existing iShares Bitcoin Trust ETF is designed to track bitcoin’s price without using the proposed managed-protection approach. BlackRock said IBIT had approximately $65.34 billion in net assets on 16 October.
BlackRock previously filed, on 23 January, for a bitcoin income ETF that would hold bitcoin and IBIT shares while selling call options to generate income. A Form 8-A filing in June preceded its planned Nasdaq listing, and the product launched on 16 June as the iShares Bitcoin Premium Income ETF (BITA). BITA focuses on income generation, while PBIT would focus on limiting losses.
A post-effective amendment to an existing iShares Trust registration statement proposes that it become effective 75 days after 19 October. The preliminary prospectus says sales cannot begin until the registration is effective.
BlackRock Fund Advisors would manage PBIT. The filing highlights risks including limited options liquidity, interest-rate movements and counterparty exposure. Under its 80% investment policy, the fund would normally place at least 80% of net assets, plus investment borrowings, in bitcoin exposure or its protection strategy.
BlackRock has not specified the management fee. Expenses would reduce returns, and the results of changing options positions could vary according to when investors bought shares.
