BlackRock has made changes to its proposed spot Bitcoin exchange-traded fund (ETF) application, making it easier for Wall Street banks, who are restricted from holding cryptocurrencies, to act as authorized participants (AP) to access the Bitcoin-focused fund.
This new set-up would enable highly regulated US banking giants such as JPMorgan Chase or Goldman Sachs to participate by creating new shares in the ETF with cash, rather than only with cryptocurrency.
BlackRock Proposed New Redemption Model Allowing Banks To Act As AP For Its Bitcoin Spot ETF
The in-kind “prepay” model was presented before the US Securities and Exchange Commission (SEC) by six members of BlackRock and three members from Nasdaq in a meeting held on November 28, 2023.
If approved by the SEC, the revised model would be a game-changer for Wall Street banks looking to get involved in the crypto market. It would allow those institutions to circumvent restrictions that prevent them from holding Bitcoin and other cryptocurrencies directly on their trillion-dollar balance sheets by serving as authorized participants for the ETF.
As per BlackRock’s memo filing, APs would transfer the cash to a broker-dealer, which is then converted into Bitcoin (BTC) and stored by a custody provider for the Bitcoin fund – which in the case of BlackRock is Coinbase Custody.
Typically, the APs for crypto-related exchange-traded products (ETPs) would be crypto market-makers and not banks. But with big banks being added to the mix, it could broaden the ranks of liquidity providers in the crypto market.
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ETF experts argue that the new redemption model to BlackRock’s proposed ETF would allow APs to use their sizeable amounts of cash to create new shares and increase market liquidity without needing to hold or invest in crypto, thereby lowering their risk.
BlackRock argued that its revised model also offers “superior resistance to market manipulation”, which has been one of the main reasons pointed out by the SEC in its decision to deny all prior spot Bitcoin ETF applications.
The world’s largest asset manager holding over $9 trillion worth of assets under management (AUM) claimed that its new ETF structure would strengthen investor protections, lower transaction costs, and increase “simplicity and harmonization” across the Bitcoin ETF ecosystem.
if the SEC accepts the “dual model” of creating and redeeming with cash and physical, it would mean that liquidity for the ETF’s shares would be increased when they are traded.
In a recent interview with CoinDesk, Sui Chung, the CEO of digital asset benchmarks firm CF Benchmakers,
He also added that even though crypto market-making firms like Jane Street, and Jump Trading are big and have the experience, they lack the trillions of dollars worth of liquidity that Wall Street megabanks possess.
CF Benchmarks is owned by the crypto exchange Kraken and acts as the benchmarks administrator for several existing spot Bitcoin ETF applicants, including BlackRock’s.
Meanwhile, Richard Mico, the U.S. CEO and global head of legal, risk, and compliance at fintech firm Banxa, noted that an ETF provides a “regulated and compliant investment vehicle” that big banks like Goldman Sachs and JP Morgan can pursue to increase their exposure to Bitcoin while still maintaining their “fiduciary responsibilities” within the traditional stock market.
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SEC Will Decide On The Fate Of Bitcoin Spot ETFs By March 2024
The SEC is expected to decide on BlackRock’s application by January 15, with a final deadline scheduled for March 15, 2024.
Grayscale, Bitwise, Fidelity, Invesco Galaxy, ARK Invest, Hashdex, and VanEck are among other financial firms that await a decision by the SEC regarding their spot Bitcoin ETF applications early next year.
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ETF analysts predict that the SEC will finalize a decision on the pending BTC spot ETF proposals sometime between January 5 and 10, 2024.
At the time of writing, Bitcoin (BTC) is trading at $40,889 – down 2.2% in the last 24 hours.
