BlackRock Approves Bitcoin ETF Cash Redemptions

On Dec 20, 2023

In a significant development in the cryptocurrency industry, leading contenders for a spot Bitcoin exchange-traded fund (ETF) in the United States are revising their application filings. These amendments align with the cash redemption model mandated by securities regulators. This move marks a pivotal shift in the approach to Bitcoin ETFs, underscoring the evolving regulatory landscape in the U.S.

Key Players and Their Adjustments

BlackRock, a renowned investment manager, and ARK Invest, led by the influential Cathie Wood, are at the forefront of this change. They have updated their S-1 registration statements submitted to the U.S. Securities and Exchange Commission (SEC). The revisions, filed on December 18, focus on the cash creation and redemption mechanism for their proposed spot Bitcoin ETFs. These amendments indicate a shift from in-kind redemptions, which usually involve non-monetary payments like Bitcoin, to a system that primarily involves cash transactions.

ARK Invest, specifically, has outlined in its ARK 21Shares Bitcoin ETF that it will facilitate only cash-based creations and redemptions. The firm acknowledges the possibility of in-kind transactions, but this remains subject to future regulatory approvals. Similarly, BlackRock’s iShares Bitcoin Trust ETF has undergone a parallel update. The firm has left the door open for in-kind transactions, contingent upon receiving the green light from regulatory bodies.

I know for fact ARK/21Shares did NOT want to do cash creations, even worked out a creative alt way to do in-kind.. so if they surrendering that tells you SEC not budging, debate is over, which is prob good if you looking for Jan approval bc we at 11th hour, holidays about to hit

— Eric Balchunas (@EricBalchunas) December 18, 2023

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Implications of the Cash-Only Requirement

This “cash-only” requirement set by the SEC signifies a clear directive: authorized participants (APs) can only acquire more ETF shares by providing the equivalent cash value. This approach differs from the ‘in-kind’ creation mechanism where APs can exchange the asset the ETF tracks for shares. The SEC’s preference for a cash-only model is grounded in transparency, ensuring clarity on the source of the underlying Bitcoin for these ETFs. It’s anticipated that these ETFs will source their Bitcoin primarily from reputable exchanges.

“Cash only” means that the authorized participants (APs), the entities that directly interact with the Exchange Traded Funds (ETF), will only be able to obtain more shares (this is called share creations) of the ETF by bringing the appropriate amount of cash to the table. For… https://t.co/lBsEgCKmi4

— Vance Harwood (@6_Figure_Invest) December 19, 2023

WisdomTree, another global ETF provider, also updated its filing for the WisdomTree Bitcoin ETF on the same day. It has maintained the possibility of in-kind creation and redemption, although this option is yet to receive regulatory approval.

Finance experts and analysts view these developments as indicative of the industry’s readiness to comply with regulatory norms. This change in stance is seen as a positive step towards potential approval of these ETFs, possibly as early as January.

These amendments mark a new era in the journey of Bitcoin ETFs in the U.S. market. As major players like BlackRock, ARK Invest, and WisdomTree navigate the regulatory landscape, their willingness to adapt reflects the growing maturity of the cryptocurrency sector. This shift towards cash redemption models could pave the way for broader acceptance and integration of Bitcoin ETFs into mainstream financial markets.