The SEC Prefers Cash Redemption Model for Spot Bitcoin ETFs
The United States Securities and Exchange Commission (SEC) is signaling a preference for a cash redemption model in spot Bitcoin exchange-traded funds (ETFs). Invesco and Galaxy Digital have recently adjusted their filings to align with this model, indicating a broader industry shift. This shift was highlighted by finance lawyer Scott Johnsson on December 14. The updated S-1 filings of these firms now demonstrate a commitment to cash transactions to create and redeem ETF shares, diverging from the in-kind redemption model proposed by BlackRock.
Difference Between Cash Creation Model and In-Kind Model
The key distinction between the two models lies in their operational mechanics. In a cash creation model, participants deposit cash equivalent to the net asset value of the created ETF units, which is then used by the fund to purchase assets like Bitcoin. On the other hand, the in-kind model involves depositing a basket of securities that mirror the ETF’s portfolio, avoiding immediate cash transactions.
Advantages and Disadvantages of Cash Model
While the in-kind model is often viewed as more efficient, the cash model offers greater participant flexibility. Despite potential drawbacks like wider spreads and tax inefficiencies, the cash model is still seen as an improvement over traditional financial platforms.
SEC’s Increasing Preference for Cash Model
Bloomberg senior ETF analyst Eric Balchunas noted that the SEC’s preference for the cash model is becoming increasingly evident. This trend is supported by ongoing discussions between the SEC and various asset managers, including BlackRock, Grayscale, and Fidelity, as they finalize their spot Bitcoin product offerings.
Postponed Approval Decision for Spot Ether ETF
The SEC’s decision on approving a spot Ether ETF for Invesco and Galaxy Digital, originally scheduled for December 13, has been postponed. However, analysts anticipate the approval of a batch of spot BTC products in early January.
Hot Take: SEC Favors Cash Redemption Model for Spot Bitcoin ETFs
The United States SEC is leaning towards a cash redemption model for spot Bitcoin ETFs, as evidenced by recent adjustments in filings by Invesco and Galaxy Digital. This departure from the in-kind redemption model proposed by BlackRock suggests a significant shift in the industry. The cash creation model allows participants to deposit cash to purchase assets like Bitcoin, offering greater flexibility despite potential drawbacks. Bloomberg senior ETF analyst Eric Balchunas highlights the SEC’s increasing preference for the cash model, supported by ongoing discussions with asset managers. While the approval decision for a spot Ether ETF has been delayed, analysts anticipate the approval of spot BTC products in early January.
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