The SEC encourages the use of cash for creating and redeeming Bitcoin ETFs, but BlackRock expresses interest in an alternative approach.
The SEC maintains its preference for a cash-based redemption model for Bitcoin ETFs, despite concerns from issuers like BlackRock. These issuers propose an alternative model, but the SEC shows no signs of backing down.
According to reports, Invesco and Galaxy agreed to use a cash-based redemption model for their Bitcoin ETFs, succumbing to pressure from the SEC.
A clash between the SEC and some Bitcoin ETF applicants over the redemption model persists. While the SEC prefers a cash-based model, applicants, including BlackRock, suggest an in-kind redemption model might be more efficient
ETFs can create and redeem shares in two ways: cash-based or in-kind creation and redemption.
In a cash creation model, an authorized participant deposits cash in the fund to create new ETF shares, with the amount determined by the net asset value.
The cash deposited is then used to purchase underlying assets like Bitcoin.
Under the in-kind creation model, the authorized participant transfers a portfolio of securities exactly matching the ETF’s composition in terms of quantity and weighting.
The in-kind model allows the fund to issue new shares without selling underlying assets for cash, considered more efficient for ETFs.
While the in-kind model may offer efficiency , the cash creation model provides investors with more flexibility.
Eric Balchunas, a senior ETF analyst at Bloomberg, suggests the most recent Bitcoin ETF filing implies the SEC is willing to approve only those using the cash creation model. He notes this information through “back channels.”
Balchunas also mentions the interest in whether BlackRock can influence the SEC’s stance on in-kind creation.
However, Seyffart made an addition:
“I think everyone is gonna have to bend the knee to cash creates and redeems.”
In late November, BlackRock met with the SEC, presenting a revised or hybrid in-kind model design favoring that method over cash creations.
Seyffart notes Bitwise’s shift to using only cash for ETF share creation and redemption on December 4th, after considering both cash and in-kind options.
The SEC delays its decision on two Ether ETFs proposed by Invesco and Galaxy Digital.
Representatives from asset managers like BlackRock, Grayscale, and Fidelity meet with the SEC to discuss spot Bitcoin ETFs, indicating the SEC is preparing to approve a batch in early January.
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