Will IBIT's handling of the Hard Fork Help New POW?

Bitcoin
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Hi everyone, I posted this in Matthew Kratter’s Bitcoin University forum and wanted to share here as well in case anyone has thoughts.

Not that I care about IBIT, but I do think it could be interesting to think about the implications of the dilemma they are now facing.

After the hard fork, Blackrock, like the rest of us, will hold both coins. They will need to decide what to do.

The prospectus says that normal course of action is to actually just discard whichever chain they deem to NOT be Bitcoin (they will no doubt choose Corecoin as Bitcoin) and calculate fund NAV based only on their chosen coin.

So, if the new POW chain is meaningful in value after the fork, IBIT holders by default could take a hit.

The prospectus also says Blackrock may choose an alternate path, which is to petition for a fast-tracked exchange listing so that they can sell one of the coins to avoid the above.

I worked closely with Blackrock and iShares in my old tradfi trading job, and I say for a fact they are thinking carefully about this.

Blackrock’s index business above all wants to avoid risk and accountability. They do not have a mandate to express views if those views can lead to meaningful tracking error. That’s why their default option is so conservative.

However, if something like that obviously screws the fund’s holders, they will work hard to find workarounds.

I think what they will want is a futures market. This will give them two things: 1. Eliminate the risk of choosing the wrong chain (probably a formality for them) and 2. Provide a transparent, liquid exit price.

Sorry for the fiat talk, but I just thought I would share this perspective, and see if Paul or anyone else thinks this actually could help the hard fork in some way by forcing exchanges to accommodate?

FYI here’s what the prospectus says:

From time to time, the Trust may be entitled to or come into possession of rights to
acquire, or otherwise establish dominion and control over, any digital asset (for
avoidance of doubt, other than bitcoin) or other asset or right, which rights are
incident to the Trust’s ownership of bitcoins and arise without any action of the
Trust, or of the Sponsor or Delaware Trustee on behalf of the Trust (“Incidental
Rights”) and/or digital assets, or other assets or rights, acquired by the Trust
through the exercise (subject to the applicable provisions of the Trust Agreement) of
any Incidental Right (“IR Digital Asset”) by virtue of its ownership of bitcoins,
generally through a fork in the Bitcoin blockchain, an airdrop offered to holders of
bitcoins or other similar event.
With respect to a fork, airdrop or similar event, the Sponsor will cause the Trust to
permanently and irrevocably abandon the Incidental Rights and IR Digital Asset and
no such Incidental Right or IR Digital Asset shall be taken into account for purposes
of determining the NAV of the Trust. In the event the Trust seeks to change this
position, an application would need to be filed with the SEC by NASDAQ seeking
approval to amend its listing rules to permit the Trust to sell Incidental Rights or IR
Digital Asset and distribute the cash proceeds (net of expenses and applicable
withholding taxes) to Depository Trust Company (“DTC”) or distribute the Incidental
Rights or IR Digital Asset in-kind to DTC. Because the Trust will abandon any
Incidental Rights and IR Digital Asset, the Trust would not receive any direct or
indirect consideration for the Incidental Rights or IR Digital Asset, and thus the value
of the Shares will not reflect the value of the Incidental Rights or IR Digital Asset.
See “Risk Factors—Risks Related to the Trust and the Shares—A temporary or
permanent “fork” could adversely affect the value of the Shares. In addition,
Shareholders will not receive the benefits of any Incidental Rights and any IR Digital
Asset, including any forked or airdropped assets.”

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Interesting. Yeah I’m curious what the institutions that hold Core Bitcoin will do with their new Bitcoin. This includes Strategy. It will be very telling if new Bitcoin gets listed and institutions DON’T immediately dump it. I suspect they will but still interesting to wonder if they don’t.

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Yes but don’t forget Strategy are sellers of corecoin too as of this year haha.

Blackrock and all other institutions will certainly dump. The interesting thing that I see is that the institutions, particualrly the ETF providers, will push for exchange support of both to allow them to sell in a liquid market.

Let’s say BTC on Coinbase is 50k right before the fork. If right after the fork, corecoin is going to presumably drop in value because now you have the sum of two things. If they believe that each has at least some material value, I don’t think they can follow their normal rules and just chuck out Bitcoin and only calculate the fund’s NAV on corecoin. They will push for an immediate listing so they can sell and then distribute a dividend. I think they may go even further and push for a futures market prior to chain split.

My understanding is that Coinbase did NOT fastrack a listing for Bitcoin gold, which is interesting.

Anyway, just throwing this issue out there.

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Looks like longterm thinking. After a hard fork the ‘suits’ will most likely imo do nothing but blindly believe they support the real bitcoin (imp Bpedo). On the other hand a new fork let’s call it the Pleb-Bitcoin needs a long time to grow in strength.

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Institutions will dump the new POW chain, no doubt.

My point is this: I see a lot of questions on Twitter about will there be the ability to trade the POW coin, or will it be discriminated against.

My view is that the major institutions may be FORCED to tell the exchanges to create a tradable instrument immediately, so that they can divest transparently and quickly.

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I disagree. I don’t think they’re even paying enough attention to realize there is another fork. And even if they are, the amount they stand to gain from selling forked coins will be miniscule anyway.

What motivation does Coinbase have to list this fork that almost none of its users will use? The people supporting the fork do not use Coinbase. How will they get rid of it?

This isn’t 2017. The concept of forking off bitcoin yet again is long dead. I’m not trying to be mean, but if you think anyone other than a very small minority of bitcoiners are treating this fork as legitimate then you are going to be in for a rude awakening. The vast majority of bitcoin’s $1.5T market cap doesn’t care at all about this. Even IF they have the chance to sell off some forked coins (which will also crater what little value this forked coin might possibly have).

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In the short term, you’re right. Bitcoin Corechain has momentum that will carry it for some time, along with growing mainstream adoption that brings in fiat-minded individuals who don’t necessarily care about Bitcoin’s fundamentals.

In the long term, however, I think you’re wrong. Bitcoin Corechain is no longer fundamentally Bitcoin, and as a result, much of what originally made Bitcoin worth buying is no longer there. It becomes purely a speculative play for fiat-minded individuals. Just another stock.

Bitcoin Blakechain will likely be slow to start, but it will retain the fundamentals that made Bitcoin what it is today. Eventually, Corechain users will begin looking elsewhere as their transactions are censored, the 21 million cap is compromised and inflation creeps in, and any meaningful form of self-custody disappears, giving governments and regulated institutions increasing control over the flow of coins. You could argue that some of this is already happening through the “paper Bitcoin” that suitcoiners willingly participate in.

At that point, they’ll look to Blakechain as a life raft. And the people who spent those early years mining, building, and stacking on Blakechain (us) will suddenly become the new “they were so lucky to get in early” crowd.

The old adage will hold true once again: “Everyone gets Bitcoin at the price they deserve.”

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Look what happened to BTC when core released v30. The market reacts to information and fundamentals.

I agree with piedpiper for the most part. And although it’s very difficult to know what chances the POW change has at functioning properly, I’m hopeful. If it manages to remain secure for a meaningful amount of time, it’s hard for me to see it not becoming a meaningful competitor pretty quickly.

And I can tell you for a fact Blackrock have a research team that is following the fork. I think they will push for listing quickly so they can sell and distribute proceeds. They don’t want their fund to look like it steals from the investors by just chucking a meaningful asset in the trash. That’s why the prospectus has the special condition.

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This is a narrative I keep hearing but very much disagree with. I am someone who switched to Knots before the OP_RETURN stuff because I wanted more control over my node. Then Core went and blew out OP_RETURN (and also increased the number of OP_RETURNS that could be included in a single transaction) which I didn’t agree with, and in general they were completely tone-deaf to users. This isn’t anything new, it’s just something that became more obvious with the whole OP_RETURN fiasco.

I supported BIP-110, but in hindsight it’s kind of obvious why a lot of people didn’t. I never expected the OP_RETURN stuff to make a big difference either way, and honestly there were a lot of poor arguments on both sides. Fundamentally, bitcoin is no different to me than it was a year ago. A minority-supported UASF got rejected by the majority of the network. It was temporary anyway (which was one of the problems with it in the first place). Nothing has fundamentally changed, except the opinions of a few key individuals who seem to be pushing this fork with a sense of urgency that I just do not see existing.

Hard forks happen all the time in Monero. They have no problem embracing them. I admire that, actually. That community will never deal with the monumental task of the inevitable hard fork that bitcoin will have to undergo. But their community is also much smaller, and much more privacy-focused. Their goal is entirely different. For bitcoin, a hard fork is the nuclear option when all other options have been exhausted. We’re not at that point yet, we simply aren’t. There are far too many people still invested in it and still working towards fixing the current problems, and the current problems are not so dire that they cannot be fixed. The only counterargument to this is apocalyptic messaging of how bitcoin is completely captured and/or owned by the miners, which just isn’t true. Again, nothing has changed since a year ago. It’s the same as it has always been, with larger OP_RETURNs that no one is actually using, including Citrea (yeah, that whole Citrea thing was a complete lie).

A tiny minority is hoping that the vast majority of the rest of the network will eventually come around to agree with what they think. That’s extremely wishful thinking, the kind that Bcashers and BSVers still cling to to this day. Sorry, it’s not going to happen, no matter how good your intentions. There’s too much at stake.

Edit: I meant to point out, nothing has changed since a year ago, except now I CAN’T run Knots and am forced to run a patched version of Core because Luke has decided to quit bitcoin. Which is definitely a loss for bitcoin, no matter how disagreeable he can be at times.

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They are like Coinbase, they make money off of their financial products. Selling a forked coin that is worth .1% of the value of the bitcoin they hold is pocket change for them. The prospectus was CYA wording. Blackrock gets to decide for themselves what the bitcoin actually is in their portfolio in the event of a chain split. If anything, the lucrative thing for them to do would be to support the forked coin and then keep all of the original bitcoin for themselves, but that would kill their ETF and make all of their investors hate them.

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If it’s 0.1% then yes perhaps they simply discard it. But if it’s greater than 2 or 3% I think they won’t want to be seen as stealing from the fund’s holders. I used to work pretty closely with Blackrock’s equity ishares PMs and they are very focused on things like this. Anyway, just my hypothesis.

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There’s so much I disagree with in what you’ve said that I could write a much longer response, but in short, you’re right about one thing: nothing has changed since a year ago. That’s because Bitcoin’s capture and centralization happened more than a year ago. This BIP110 event simply exposed it to the point where it could no longer be ignored.

If you don’t see it now, I think you eventually will. Corechain is the frog in the pot being slowly boiled to death.

Don’t believe me? Ask yourself two questions:

  1. What would have to happen to Bitcoin for you to change your mind about it and stop believing in it? Would it be the removal of the 21 million cap? Censorship of transactions? Loss of meaningful self-custody? Something else?

  2. Once you’ve answered that, ask yourself honestly: what power would you and other plebs actually have to stop it if Core and/or the large miners decided they were going to do that very thing?

Everyone has a different threshold for how much deviation from Bitcoin’s core principles they’re willing to tolerate. That’s why some of the more principled and originalist devs and plebs are transitioning to Blakechain, while others with a higher tolerance for compromise are staying on Corechain.

Eventually, Corechain may cross your threshold too. The lesson I take from the BIP110 event is that when it does, you’ve already been shown ordinary users have no power to stop it.

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A lot of valid points here on the fork. It’s very difficult to weigh the different considerations. Here is where I currently sit, in a not very organized dump:

-Bitcoin is in a nascent stage where there is effectively no real economy on top of it at present.

-That said, many are accumulating it due to its superior monetary properties with the speculative view that an economy will eventually come. Therefore, the only real economic activity is fiat<->Bitcoin right now.

-I see this as the fundamental cause of Bitcoin’s woes - essentially the centralization we see across the ecosystem is because the ecosystem is just fiat for Bitcoin trading (even mining is basically just fiat for Bitcoin and vice versa).

-I think this is why BIP110 played out the way it did, even if you relax the assumption that there was direct collusion between the pools. As a hodler, I didn’t have any urgent, life or death economic need to transact during the signaling period. So although my node client was signaling, I couldn’t really incentivize the miners through transactions.

-If our economy was on a Bitcoin standard, the dynamics would be very, very different. People have to transact to live (L2’s don’t negate this), so everyone really is forced to weigh in and choose economically.

-It’s hard for me to explain, but I think this is why we need the hard fork right now. It sets up a different bargain. Long term value hodlers can better express their views now by routing around the dilemma of the UASF.

-I agree that a hard fork has many risks and dangers. I don’t know if now is the time, nobody does. But I can say that, just intuitively, it feels like Bitcoin needs to shed its skin. Wait too long, and the ledger will have lost its economic power.

Not a very thorough explanation, but hopefully you guys can get the gist of what I’m trying to express.

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To my humble understanding the exchanges will open their markets the moment people are willing to buy their shitcoins. Bitcoin- blake2b is not a shitcoin it is a dormant new born bitcoin. With time the interest in the market will grow and the baby will grow in to a child etc. This is 50% wishfull thinking but at least 50% is common sense. I am ready for the next bitcoin gear.

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