BlackRock shifts focus to cash-based redemptions in its proposal for a spot Bitcoin ETF.
BlackRock, the largest asset manager in the world, is in the final stages of preparing its application for a Bitcoin exchange-traded fund (ETF). The company is aligning with the preferences of US financial regulators, who favor “cash creations” for fund redemptions. Bloomberg’s senior ETF analyst, Eric Balchunas, revealed this information on December 19, following BlackRock’s filing the day before. Balchunas emphasized that BlackRock has transitioned to a cash-only approach, putting an end to the debate over the preferred method for ETF redemption and creation. The revised proposal outlines the cash creation and redemption mechanisms for BlackRock’s ETF, following the model advocated by the Securities and Exchange Commission (SEC). With growing anticipation, BlackRock is joining other firms in updating their proposals, leading to speculation that the SEC may approve multiple spot Bitcoin ETF applications as early as January.
BlackRock originally submitted its application for the iShares Blockchain and Tech ETF last month, proposing an in-kind redemption model. However, the SEC’s concerns about investor safety and market manipulation led to scrutiny of the proposal. Generally, ETFs offer two mechanisms for redemption and creation: in-kind or cash. The in-kind structure allows firms to redeem shares for bitcoin held by their ETFs, avoiding market maker spreads and potential tax issues. On the other hand, cash redemptions, which are preferred by the SEC for safety and accessibility, provide investors with the equivalent cash value of their shares, resulting in taxable transactions.
Despite pressure from the SEC to amend applications to cash creations, ETF analyst James Seyffart noted that Wisdomtree’s recent filing amendment still allows for in-kind creation and redemption. On December 18, Ark Invest and 21Shares also adapted their filings to include cash creation, as reported by Balchunas. This shift towards cash creation could potentially pave the way for approval of the ETF in January, as the industry reaches a critical juncture before the holiday season.
