BlackRock has updated its spot Bitcoin ETF application, introducing a new model that simplifies participation for major Wall Street banks by allowing the creation of new shares using cash instead of exclusively cryptocurrency.
This innovative in-kind redemption “prepay” model opens the door for financial giants like JPMorgan and Goldman Sachs to act as authorized participants (APs) in the fund. This approach helps them bypass regulations that restrict direct Bitcoin or cryptocurrency holdings on their balance sheets.
Representatives from BlackRock and Nasdaq met with the U.S. Securities and Exchange Commission (SEC) on Nov. 28 to discuss the new model. This adjustment could significantly impact Wall Street banks with massive balance sheets eager to engage in Bitcoin investment, circumventing their inability to directly hold the cryptocurrency.
The revised approach involves APs transferring cash to a broker-dealer who then converts it into Bitcoin. The Bitcoin is then stored with the ETF’s custody provider, Coinbase Custody, in the case of BlackRock’s fund. Additionally, this model reallocates risk, moving it from APs to market makers.
Highlighting the benefits, BlackRock stated that the new ETF structure provides “superior resistance to market manipulation,” addressing a major concern the SEC has had in denying previous spot Bitcoin ETF proposals. It also aims to enhance investor protection, reduce transaction costs, and foster greater simplicity within the Bitcoin ETF market.
BlackRock’s Continued Dialogue with the SEC
BlackRock’s recent meeting on Dec. 11 marks their third discussion with the SEC, led by Gary Gensler. This follows their Nov. 28 meeting, which itself was a continuation of initial talks on Nov. 20 about their original in-kind redemption model.
The SEC is scheduled to decide on BlackRock’s application by Jan. 15, with a final decision deadline set for March 15.
In the meantime, the SEC is expected to announce decisions on several pending spot Bitcoin ETF applications between Jan. 5-10. Among the firms awaiting the SEC’s decision during this period are Grayscale, Bitwise, VanEck, WisdomTree, Invesco Galaxy, Fidelity, and Hashdex.