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BlackRock Revises Spot Bitcoin ETF for Wall Street Banks’ Entry

Bitcoin BlackRock has modified its application for a spot Bitcoin exchange-traded fund (ETF) to facilitate greater participation from major Wall Street banks, such as JPMorgan and Goldman Sachs. The revised in-kind redemption "prepay" model enables these banks to act as authorized participants, allowing them to create new fund shares using cash rather than direct cryptocurrency
BlackRock has modified its application for a spot Bitcoin exchange-traded fund (ETF) to facilitate greater participation from major Wall Street banks, such as JPMorgan and Goldman Sachs. The revised in-kind redemption “prepay” model enables these banks to act as authorized participants, allowing them to create new fund shares using cash rather than direct cryptocurrency holdings.

This innovative model, presented by six BlackRock members and three from Nasdaq during a Nov. 28 meeting with the U.S. Securities and Exchange Commission (SEC), aims to address the regulatory challenges faced by highly regulated banks that are restricted from holding Bitcoin on their balance sheets.

If approved, this move could significantly impact Wall Street banks with substantial balance sheets, providing them with a means to engage in the cryptocurrency market indirectly. In this new structure, authorized participants transfer cash to a broker-dealer, which then converts it into Bitcoin and stores it with the ETF’s custody provider, in this case, Coinbase Custody.

BlackRock’s revised in-kind redemption model presented to the SEC on Nov. 28. Source: SEC
BlackRock’s revised in-kind redemption model presented to the SEC on Nov. 28. Source: SEC

The revised model not only shifts risk away from authorized participants but also addresses concerns related to market manipulation, a key factor in the SEC’s past rejections of spot Bitcoin ETF applications. BlackRock asserts that the updated structure enhances investor protections, reduces transaction costs, and promotes simplicity and harmony within the broader Bitcoin ETF ecosystem.

Damn, the SEC is busier than Santa’s elves. BlackRock’s third meeting with them yesterday is the most notable IMO as everyone is waiting to see if they can convince SEC to allow in-kind creations in the first run of approvals. https://t.co/r2jqgpg87m

— Eric Balchunas (@EricBalchunas) December 12, 2023

BlackRock’s engagement with the SEC includes a third meeting on Dec. 11, following up on sessions held on Nov. 20 and Nov. 28. The SEC is expected to make a decision on BlackRock’s application by Jan. 15, with a final deadline set for March 15.

Analysts predict that the SEC will issue decisions on multiple pending spot Bitcoin ETF applications between Jan. 5–10, involving firms such as Grayscale, Bitwise, VanEck, WisdomTree, Invesco Galaxy, Fidelity, and Hashdex.

Wasif Shakir

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