- BlackRock has revised its in-kind model for its Bitcoin ETF application to address the SEC’s concerns.
- This revision is part of BlackRock’s efforts to secure approval for its Bitcoin ETF, as the race intensifies with the 13th entrant.
BlackRock’s Pivotal SEC Negotiations
The race for a spot Bitcoin Exchange-Traded Fund (ETF) has intensified with BlackRock, a global investment management corporation, making significant adjustments to its ETF model. This move is a response to the Securities and Exchange Commission’s (SEC) concerns regarding the balance sheet impact and risks associated with the Market Maker’s broker/dealer entity.
In-Kind Redemption Model: A Strategic Shift
BlackRock’s engagement with the SEC has brought to light the complexities of choosing between a cash model summary and an “in-kind” redemption model for their proposed Bitcoin ETF. The in-kind redemption model, preferred by BlackRock and other applicants, aims to mitigate restrictions on broker-dealers. However, the SEC’s concerns led BlackRock to present a revised version of this model.
The original in-kind redemption flow involved an Authorized Participant (AP) ordering from the ETF issuer, with the Market Maker-crypto (MM-crypto) borrowing Bitcoin or cash to sell short. In contrast, the revised model starts with MM-crypto delivering cash to the Market Maker’s broker/dealer entity (MM-BD), who then transfers ETF shares to a Transfer Agent. The issuer then instructs the Bitcoin custodian to transfer coins to MM-crypto, closing the short position in Bitcoin.
Advantages of the Revised Model
BlackRock’s revised in-kind model addresses several investor needs. It promises lower transaction fees, enhanced resistance to market manipulation, and reduced operational risks. This flexibility in BlackRock’s approach demonstrates its commitment to aligning with regulatory requirements, highlighting the firm’s dedication to launching this innovative financial product.
As the ETF market evolves, BlackRock’s strategic revisions in its Bitcoin ETF application underscore the dynamic nature of the cryptocurrency sector. By adapting its approach to meet regulatory concerns, BlackRock reinforces its position as a forward-thinking player in the race to introduce a regulated Bitcoin ETF, aiming to provide investors with a secure and innovative investment option in the burgeoning cryptocurrency market.