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Thursday, April 18, 2024

BlackRock Bends The Knee To SEC In Latest Bitcoin ETF Filing

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BlackRock has re-updated its Bitcoin (BTC) spot ETF filing with changes making key concessions to federal regulators on how shares in its fund will track the price of Bitcoin.

Submitted on Monday, the asset manager’s latest S-1 form reveals that new shares in the trust can only be created using cash – a model experts deem less tax-efficient than redemptions “in kind” Bitcoin-based creations.

BlackRock’s Cash Creation Model

BlackRock’s change followed several updates from rival ETF applicants sporting similar pivots to a cash-creation model. One came from ARK Invest and 21Shares, whose application is due for final approval and/or denial by January 10.

“These transactions will take place in exchange for cash,” reads BlackRock’s filing concerning the redemption of large baskets of shares. “Subject to the In-Kind Regulatory Approval, these transactions may also take place in exchange for bitcoin.”

BlackRock, Grayscale, and other ETF applicants have held several meetings with SEC staff since last month debating which share redemption model to permit.

For asset managers, an in-kind model is more streamlined and avoids tax complications from self-executed sales and purchases of BTC. On the other hand, the Securities and Exchange Commission (SEC) believes the model creates balance sheet risks for registered broker-dealers who execute such redemptions, as they would have to hold and interact with BTC.

BlackRock proposed an alternative in-kind model for addressing such balance sheet risks during an SEC meeting last month but to no immediate avail.

“That’s basically a wrap. Debate over. In-kind will have to wait,” wrote Bloomberg ETF analyst Eric Balchunas regarding BlackRock’s filing in an X post. “It’s all about getting ducks in row bf holidays. Good sign.”

Bitcoin ETF Approvals Incoming

The cash model will still require that BlackRock’s custodian, Coinbase, hold on to actual BTC to back its share value, making it a step up for many investors over existing Bitcoin futures ETFs.

Though the SEC denied spot ETFs for years, its recent court loss to Grayscale has forced the agency to take a “fresh look” at relevant applications.

Balchunas still largely expects simultaneous approval of multiple ETF applications next month, though he is now doubtful that the Grayscale Bitcoin Trust (GBTC) will be part of the initial wave of approvals.

His partner analyst, James Seyffart, noted on Monday that WisdomTree’s Bitcoin ETF filing still includes an option for in-kind redemptions.

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