BlackRock Plans to Shift Risk to Crypto Market Makers for Bitcoin ETF
BlackRock aims to facilitate the participation of Wall Street banks in its Bitcoin ETF by transferring risk to crypto market makers, according to a memo shared by the SEC. The plan includes a unique method for redeeming shares in the ETF. A Bitcoin ETF would allow investors to gain exposure to Bitcoin without directly purchasing or storing the asset. The SEC has been hesitant to approve such a product due to concerns about market manipulation. While the SEC has until January 15 to make a decision on BlackRock’s application, analysts predict that a decision will be issued earlier this month.
November Meeting Raises Concerns
The meeting between BlackRock, Nasdaq, and the SEC was a follow-up to a previous meeting where the regulator expressed concerns about BlackRock’s redemption model. The previous proposal involved T+1 settlement, where shares were redeemed through various steps involving broker dealers, transfer agents, custodians, and crypto market makers. However, the new settlement flow proposed by BlackRock would involve crypto market makers initiating settlement with cash before authorized participants, such as large Wall Street banks, become involved.
Improved Resistance to Manipulation
The revised redemption flow is designed to address the SEC’s concerns over market manipulation. By starting settlement with cash instead of Bitcoin, the new model offers “superior resistance” to manipulation and simplifies the process for institutional investors. Many large financial institutions rely on third-party custodians for digital assets, so starting the redemption flow with Bitcoin would have required additional steps. By making the process faster and less risky for large institutions, BlackRock aims to attract more institutional investment into its Bitcoin ETF.
Hot Take: BlackRock’s Risk-Shifting Strategy Could Pave the Way for Bitcoin ETF Approval
BlackRock’s plan to shift risk to crypto market makers in its Bitcoin ETF application could address the SEC’s concerns about market manipulation and increase the likelihood of approval. By proposing a unique redemption flow that starts with cash instead of Bitcoin, BlackRock aims to create a simpler and more secure process for institutional investors. This strategy could attract more institutional dollars into the Bitcoin ETF, potentially leading to a significant influx of capital into the crypto market. As the SEC prepares to make decisions on existing spot Bitcoin ETF applications, BlackRock’s risk-shifting approach may set a precedent for future approvals.
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