BlackRock Favors In-Kind Creation Model for Bitcoin ETF
In a recent meeting with the US Securities and Exchange Commission (SEC), BlackRock, the financial behemoth, has expressed a strong preference for the in-kind creation structure for its much-anticipated Bitcoin exchange-traded fund (ETF).
Understanding the In-Kind Creation Model
In-kind creation allows investors to redeem ETF shares for physical Bitcoin rather than a cash equivalent, offering direct exposure to cryptocurrencies without custody. This choice between in-kind and cash creation is crucial for ETFs, as it affects how assets are managed and how investors can buy or sell fund shares.
BlackRock’s Strategic Shift
BlackRock, the world’s largest asset manager, has advocated for the in-kind creation method over the SEC’s preferred cash creation model. The SEC recently met with BlackRock to review its application for a spot in Bitcoin ETF.
Rumors suggest that the SEC may oppose cash redemption options for Bitcoin ETFs to prevent unregistered brokers, indicating potential disagreements between BlackRock and the regulatory body. This demonstrates BlackRock’s commitment to creating a Bitcoin ETF and its willingness to work on specific details, which is expected to attract significant institutional investment in the Bitcoin space.
Gary Gensler, the SEC chair, has disclosed that the agency is reviewing applications for eight to ten spot Bitcoin exchange-traded funds, with expectations of approval early in the following year, as predicted by JPMorgan analysts.
Other Bitcoin ETF Applicants Meeting with BlackRock
Reports indicate that BlackRock has also met with other spot Bitcoin ETF applicants to discuss their applications with the SEC. Grayscale Investments, known for its Bitcoin Trust (GBTC), has communicated with the SEC about converting it into a spot Bitcoin exchange-traded fund (ETF).
Eric Balchunas, a senior ETF analyst at Bloomberg, highlighted that Ark Invest and BlackRock are “standing firm on in-kind creates.” However, it’s worth noting that the SEC may require cash created initially to avoid using unregistered brokers. Despite this, the in-kind creation approach is preferable for investors in terms of spreads and tax implications.
Hot Take: BlackRock’s Shift Towards In-Kind Creation Paves Way for Bitcoin ETF
BlackRock’s strategic shift towards in-kind creation is a significant development in the ongoing efforts to launch a Bitcoin ETF, which could potentially open up cryptocurrency investments to a wider range of institutional investors.
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