Spot Bitcoin ETF Redemption Models: ‘In-Kind’ or ‘Cash-Only’
Proponents of spot Bitcoin ETFs have been in discussions with the Securities and Exchange Commission (SEC) regarding the redemption model to be chosen. While institutions favor an ‘in-kind’ redemption, the SEC has expressed a preference for a ‘cash-only’ model.
BlackRock Inc. employees recently met with the authorities and presented a plan for a ‘Revised In-Kind’ redemption model. This proposal would provide more flexibility for investors to redeem their ETF shares and offer tax advantages for BlackRock’s iShares and Coinbase, its custodian.
However, the SEC has indicated that it favors redemptions exclusively in cash, opposing the possibility of an in-kind model.
Understanding Redemption Models
The redemption models determine what investors will receive when they disinvest from the fund. For direct deals within the fund manager, such as BlackRock, redemption applies. However, it does not apply to exchange trades.
In an in-kind model, investors would redeem Bitcoin in exchange for their ETF shares. This would shift the liquidation risk and tax obligations to investors. Some argue that this is counterintuitive because investors initially bought their shares in US Dollars, not Bitcoin.
In contrast, a cash-only model would require the fund manager to sell Bitcoin and repay investors in cash.
Expert Opinions
Matt Walsh from Castle Islands Ventures believes there is a 0% chance of the SEC approving the in-kind redemption model. Meanwhile, Eric Balchunas, Senior ETF analyst at Bloomberg, explains that the US agency prefers the cash-only model.
Interestingly, both experts express personal preference for a revised in-kind redemption model. Regardless of the chosen model, this news suggests that approval for a spot Bitcoin ETF may be imminent.
Hot Take: Spot Bitcoin ETF Approval Nears
As discussions continue between proponents of spot Bitcoin ETFs and the SEC, the choice between ‘in-kind’ and ‘cash-only’ redemption models remains a point of contention. While institutions lean towards an ‘in-kind’ redemption, the SEC has signaled a preference for a ‘cash-only’ approach. This divergence in opinion raises questions about the future of spot Bitcoin ETFs.
Despite the SEC’s reservations, BlackRock Inc. recently presented a plan for a ‘Revised In-Kind’ redemption model, which offers more flexibility for investors and tax advantages for BlackRock and Coinbase. However, it is unclear whether the SEC will approve this proposal.
Experts have varying opinions on the matter. Matt Walsh believes that the SEC will not approve the in-kind redemption model, while Eric Balchunas suggests that the cash-only model is more favorable to the US agency. Nevertheless, both experts express a personal preference for a revised in-kind redemption model.
Overall, with discussions ongoing and potential approval on the horizon, it seems that a spot Bitcoin ETF could soon become a reality.
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