Bitcoin ETF Contenders Revise Applications to Comply with SEC's Cash Redemption Model
Summary:
Major candidates for a Bitcoin (BTC) exchange-traded fund (ETF) in the U.S., including BlackRock and ARK Invest, are editing their applications to satisfy the Securities and Exchange Commission's (SEC) demand for a cash redemption model. Initially, firms like ARK and its ETF partner 21Shares had aimed to use alternative in-kind redemption methods, but the SEC's insistence on a cash-only approach has required a recalibration. Other companies such as Invesco and Galaxy have also updated their applications to adhere to the cash-only creation and redemption model.
The major contenders for a Bitcoin (BTC) exchange-traded fund (ETF) in the United States are revising their applications to accommodate the securities regulators' insistence on a cash redemption model. Investment companies BlackRock and ARK Invest, directed by Cathie Wood, have altered their S-1 registration forms for a Bitcoin ETF to conform with the requirements of the U.S. Securities and Exchange Commission (SEC), which were submitted on Dec. 18. These modifications pertain to the cash redemption and creation strategy for proposed Bitcoin ETFs, with both BlackRock and ARK preferring cash redemption over in-kind redemptions, which involve non-cash compensation like BTC itself.
ARK's filing suggested that its ARK 21Shares Bitcoin ETF would permit only cash redemption and creation. While it also referred to the likelihood of in-kind share creation and redemption, this would be dependent on regulatory approval. A comparable revision was later made by BlackRock, emphasizing that cash transactions might be supplemented by in-kind operations, again subject to approval by regulation.
According to Eric Balchunas, an ETF analyst for Bloomberg, ARK and its collaborator, 21Shares, originally had no intention of using cash for redemptions and in fact developed an innovative alternative to handle in-kind redemptions. If they are now relinquishing this position, Balchunas suggests it implies the SEC is standing firm and the discussion is over, which could signal good news for those seeking approval in January.
The SEC's insistence on a cash-only model requires authorized participants (AP) to increase their ETF share volume by bringing equivalent cash value, explains Vance Harwood, investor and consultant. However, some funds also permit in-kind creation, where APs exchange the asset tracked by the ETF for ETF shares. Harwood notes that this approach doesn't seem to sit well with the SEC when it comes to Bitcoin ETFs. The financial regulatory body’s stance receives Harwood’s support who remarks that it is prudent as it guarantees the ETF will purchase its underlying Bitcoin from reputable exchanges.
Global ETF provider, WisdomTree, submitted an amendment to its Bitcoin ETF, the WisdomTree Bitcoin ETF, on Dec. 18, maintaining its in-kind creation and redemption options. Scott Johnsson, a financial lawyer, had previously predicted in mid-December that ETF applicants would be forced to transition to a cash creation and redemption model for their ETFs, following the lead of previous applicants, Invesco and Galaxy, who had revised their S-1 registration forms to adopt the "cash-only" framework.
Published At
12/19/2023 11:40:18 AM
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