BlackRock Updates Application for Bitcoin ETF
BlackRock, the world’s largest asset manager, has made revisions to its application for a spot Bitcoin Exchange-Traded Fund (ETF) in order to address concerns raised by the U.S. Securities and Exchange Commission (SEC). The changes aim to mitigate issues related to market manipulation and broker-dealer registrations.
BlackRock’s Updated Redemption Model
In its updated proposal, BlackRock introduces a “prepaid model” within the existing in-kind redemption framework. This model requires the offshore market maker to prepay cash to the registered broker-dealer entity before delivering ETF shares during the redemption process. The goal is to reduce financial risks for the broker-dealer by separating it from the complexities of transferring Bitcoin to the market maker.
BlackRock believes that the in-kind structure, even with these modifications, offers advantages such as lower transaction costs, streamlined operations, and reduced manipulation risk.
The asset manager argues that resolving balance sheet and broker-dealer registration issues through timing and custody transfer process modifications could ensure compliance with regulatory standards and enhance incentives for shareholders.
Race for Regulatory Approval
Establishing a spot Bitcoin ETF has gained momentum, with BlackRock and Fidelity Investments among the financial giants submitting applications to the SEC. However, approval faces challenges as the SEC has been hesitant in the past due to concerns over market manipulation and surveillance measures.
Recent feedback from the SEC highlights these concerns, particularly regarding surveillance-sharing agreements with specific spot exchanges. There are rumors that the SEC may direct applicants to adopt cash-creation methods instead of transferring Bitcoin in-kind. If true, this approach would enable broker-dealers to avoid direct involvement in crypto transactions falling outside existing regulatory frameworks.
Hot Take: BlackRock Makes Adjustments to Bitcoin ETF Proposal
BlackRock has updated its application for a Bitcoin Exchange-Traded Fund (ETF) to address concerns raised by the SEC. The revisions focus on market manipulation and broker-dealer registrations. The updated proposal introduces a “prepaid model” that separates the offshore market maker from the complexities of transferring Bitcoin, reducing financial risks for the broker-dealer. BlackRock believes this in-kind structure, with modifications, offers advantages such as lower costs and reduced manipulation risk.
The path to regulatory approval for a spot Bitcoin ETF is challenging, with concerns over market manipulation and surveillance measures. Recent feedback from the SEC suggests a shift towards cash-creation methods instead of in-kind transfers. This potential change could allow broker-dealers to navigate crypto transactions outside existing regulations.
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