BlackRock Revamps Spot Bitcoin ETF

BlackRock, the world’s largest asset manager, has made a strategic revision to its spot Bitcoin exchange-traded fund (ETF) application, potentially transforming the landscape of cryptocurrency investment for Wall Street banks. This revised model aims to facilitate easier participation for banking giants, aligning with their regulatory constraints.

New In-Kind Redemption “Prepay” Model

BlackRock’s novel in-kind redemption “prepay” model allows major banks like JPMorgan and Goldman Sachs to act as authorized participants (APs) for the fund. This development is particularly significant as it enables these institutions to bypass direct Bitcoin or crypto holdings, which are often restricted due to regulatory policies.

The new model was outlined in a meeting with the United States Securities Exchange Commission (SEC) on November 28, led by representatives from both BlackRock and NASDAQ. This proposal, if approved, could be a pivotal moment for banks with trillion-dollar balance sheets eager to delve into Bitcoin investments.

Under this revised structure, APs would transfer cash to a broker-dealer. This intermediary would then convert the cash into Bitcoin, which is subsequently stored by the ETF’s custody provider – in this case, Coinbase Custody. This approach not only circumvents direct crypto holding by banks but also shifts the risk more towards market makers.

Potential Market Impact

The implementation of this model is poised to offer “superior resistance to market manipulation,” a concern that has previously led the SEC to deny spot Bitcoin ETF applications. Additionally, BlackRock asserts that this new ETF structure would amplify investor protections, reduce transaction costs, and bring simplicity and uniformity to the Bitcoin ETF market.

Following initial discussions in November, BlackRock held a third meeting with the SEC on December 11. This ongoing dialogue is part of the asset manager’s concerted effort to gain approval for its innovative ETF model. The SEC is expected to make a decision on BlackRock’s application by January 15, with a final deadline set for March 15.

ETF analysts anticipate that the SEC will decide on several pending spot Bitcoin ETF applications between January 5-10. Firms like Grayscale, Bitwise, VanEck, WisdomTree, Invesco Galaxy, Fidelity, and Hashdex are among those awaiting the SEC’s verdict.

BlackRock’s revised spot Bitcoin ETF model represents a potential game-changer in the realm of cryptocurrency investment for Wall Street banks. By aligning with regulatory requirements and risk management strategies, this move could significantly broaden institutional participation in the cryptocurrency market.