BlackRock, the world’s largest asset manager, has made a significant change to its proposed spot bitcoin exchange-traded fund (ETF) that could appeal to Wall Street banks. The change allows authorized participants (APs) – the entities that create and redeem ETF shares – to use cash instead of bitcoin.
This is a big deal because regulatory constraints prohibit most U.S. banks from holding cryptocurrencies. By using cash, they can bypass this hurdle and become APs for BlackRock’s Bitcoin ETF if it gets approved by the U.S. Securities and Exchange Commission (SEC). APs play a crucial role in the ETF ecosystem, ensuring the fund’s price stays close to its underlying asset’s value.
Banks such as JPMorgan or Goldman Sachs, which have some of the largest balance sheets in the world, could potentially act as APs for BlackRock’s Bitcoin ETF if they are interested. This would increase the liquidity and efficiency of the fund and the exposure and adoption of bitcoin.
The cash option does not mean that BlackRock’s Bitcoin ETF will not hold any Bitcoin. Rather, it means that the cash used by the APs will be converted into bitcoin by an intermediary and stored by the fund’s custody provider, according to a memo filing related to a Nov. 28 meeting between the SEC, BlackRock, and Nasdaq.
The intermediary will execute the Bitcoin transactions and manage the associated risks, such as price volatility, security breaches, and regulatory compliance. The custody provider will protect the bitcoin and ensure its accessibility and auditability.
BlackRock’s Bitcoin ETF Approval Prospects
BlackRock’s bitcoin ETF is one of several spot bitcoin ETFs that are awaiting approval from the SEC, which has so far rejected or delayed all such proposals. However, there is growing optimism that the regulator will finally greenlight a spot bitcoin ETF, as it has recently approved several bitcoin futures ETFs.
A spot bitcoin ETF would be a game-changer for the digital assets industry, as it would allow retail investors to access bitcoin directly without having to deal with the complexities and risks of buying and storing the cryptocurrency themselves. It would also boost the legitimacy and popularity of Bitcoin, as well as its price and market capitalization.
BlackRock’s cash option could give it an edge over its competitors, as it could attract more APs, especially from the banking sector, which has been largely reluctant to embrace cryptocurrencies. This could make BlackRock’s Bitcoin ETF more liquid, stable, and attractive to investors.
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