BlackRock and ARK Invest Revise Bitcoin ETF Filings to Include Cash Redemption Models
As the January 10 deadline set by the Securities and Exchange Commission (SEC) for approving or denying a spot Bitcoin ETF approaches, companies like BlackRock and ARK Invest have made changes to their filings. The SEC is now requesting cash redemption models for these funds, which would be the first to track physically backed bitcoin instead of bitcoin futures contracts. In response, BlackRock, ARK Invest, and other firms have switched from in-kind redemption models to cash redemption.
BlackRock Temporarily Sets Aside In-Kind Redemption
BlackRock, the world’s largest asset manager, has submitted an amended S-1 filing indicating that it will temporarily set aside in-kind redemption for its proposed spot Bitcoin ETF. Instead, it will offer cash creation and redemption options to investors. Originally, BlackRock had filed for in-kind redemptions, but under the revised cash model, the firm will convert the crypto asset into cash when returning shares to investors.
Difference Between In-Kind and Cash Redemption Models
The choice between in-kind and cash redemption models for spot Bitcoin ETFs has cost implications. Most ETFs use the in-kind redemption model, which allows issuers to swap underlying assets with a market maker rather than using cash. The cash redemption model incurs higher transaction costs, potentially making the product more expensive for investors. Analysts speculate that the SEC’s motive behind requiring cash redemptions may be to avoid direct handling of bitcoin by broker-dealers. By enforcing cash redemption, the SEC can maintain oversight of the entire process.
Hot Take: Cash Redemption Becomes Priority for Bitcoin ETF Approval
Companies like BlackRock and ARK Invest are revising their filings for spot Bitcoin ETFs to include cash redemption models, responding to the SEC’s demands. This shift highlights the importance of cash redemption in gaining approval for these ETFs. While the choice between in-kind and cash redemption models has cost implications, the SEC’s requirement for cash redemption may be a way to maintain oversight of the process and avoid direct handling of bitcoin by broker-dealers. Ultimately, whether or not a Bitcoin ETF is approved is what matters most, and these revisions bring us closer to that goal.
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