Major applicants for a spot Bitcoin (BTC) exchange-traded fund (ETF) in the United States are changing their applications to comply with the cash repayment model required by securities regulators.
Investment manager BlackRock and Cathie Wood’s ARK Invest have updated their S-1 registration statements for a spot Bitcoin ETF with the US Securities and Exchange Commission (SEC).
The S-1 amendments filed on December 18 address the cash creation and redemption model for proposed spot Bitcoin ETFs, with BlackRock and ARK accepting the cash redemption system instead of in-kind redemptions that imply non-monetary payments such as BTC.
ARK’s registration statement indicated that the ARK 21Shares Bitcoin ETF would only permit the creation and redemption of cash. The document mentioned “potential creation and redemption of shares in kind” and said that the ETF may also allow authorized participants to create and redeem shares through in-kind transactions, subject to regulatory approval.
BlackRock then submitted a similar update, emphasizing that in-kind transactions could take place, but only subject to regulatory approval.
“These transactions are in exchange for cash,” BlackRock’s iShares Bitcoin Trust ETF’s S-1 amendment states, adding:
“Subject to the issuance of the necessary regulatory approval by the Nasdaq Stock Market allowing the Trust to create and redeem Shares in kind for Bitcoin, these transactions may also occur in exchange for Bitcoin.”
According to Eric Balchunas, ETF analyst at Bloomberg, ARK and its ETF partner 21Shares did not want to create cash and even came up with a creative alternative method of conducting in-kind redemptions. “So if they capitulate, that means the SEC won’t budge, the debate is over, which is probably a good thing if you’re waiting for an approval in January,” the analyst wrote.
According to investor and advisor Vance Harwood, the SEC’s “cash only” requirement means that Authorized Participants (AP) can only get more shares of the ETF if they bring the appropriate amount of cash to the table.
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“Some funds also allow contributions in kind. For in-kind contributions, the AP contributes the asset tracked by the ETF and exchanges it for ETF shares. Apparently the SEC is not interested in allowing this for spot Bitcoin ETFs,” explained Harwood. He added that the SEC’s position was “understandable”:
“This makes it clear where the ETF gets its underlying bitcoins from – the ETF will buy them, presumably from reputable exchanges, whereas if you allowed in-kind transfers you wouldn’t be able to know where the transferred bitcoins came from.”
Global ETF provider WisdomTree also filed an S-1 amendment for its spot Bitcoin ETF, WisdomTree Bitcoin ETF, on December 18, retaining the in-kind creation and redemption option.
“Authorized participants may redeem baskets on behalf of the registered shareholder in exchange for the appropriate amount of Bitcoin or cash,” the registration statement says, adding that APs may be able to create or redeem a basket-friendly option.
Financial lawyer Scott Johnsson predicted in mid-December that ETF applicants would eventually have to force themselves to use a cash creation and redemption model for their ETF. Previously, ETF applicants Invesco and Galaxy also updated their S-1 registration statements with the “cash-only” model.
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