BlackRock and ARK Invest have revised their S-1 registration statements for spot Bitcoin ETFs in response to the cash redemption model imposed by the U.S. Securities and Exchange Commission (SEC).
The two major applicants for a spot Bitcoin ETF in the U.S., which would track the price of Bitcoin directly rather than through futures contracts or other derivatives, have agreed to accept the cash-only requirement for their proposed funds.
The S-1 amendments were filed on Dec. 18, along with other applications from WisdomTree, VanEck, Valkyrie Asset Management, and Invesco. The cash-only model means that authorized participants (APs), who are entities that can create or redeem shares of an ETF on behalf of investors, can only obtain more shares by bringing cash to the table.
This contrasts with some other spot Bitcoin ETFs that allow in-kind redemptions, which involve non-monetary payments like BTC. ARK’s registration statement indicated that its ARK 21Shares Bitcoin exchange-traded funds would only allow cash creations and redemptions.
The document stated: “Potential in-kind creation and redemption of shares,” adding: “Subject to regulatory approval.” BlackRock followed suit with its iShares Bitcoin Trust ETF S-1 amendment: “These transactions will take place in exchange for cash,” it read: “Subject to regulatory approval.”
SEC’s Cash-Only Model: Impact On ETF Approval
The SEC’s cash-only model is seen as a victory for crypto regulation by some experts and advocates. According to Bloomberg analyst Eric Balchunas, ARK and its partner 21Shares did not want to do cash creations because they feared they would face more scrutiny from regulators than those using in-kind redemptions.
Balchunas stated that if the companies surrender their applications, the SEC will not compromise. This signifies the discussion has concluded. He continued, For those seeking January authorization, this result may be favorable.
The SEC has been reluctant to approve any spot Bitcoin exchange-traded funds due to market manipulation, fraud, custody issues, liquidity risks, and investor protection concerns. However, some analysts believe that the SEC may be open to approving some spot Bitcoin ETFs if they meet certain criteria.
“It will make it clear where the ETF gets its underlying Bitcoin from — the ETF will buy them, presumably from reputable exchanges, whereas if you allowed in-kind transfers you wouldn’t be able to know where the Bitcoin transferred came from.”
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