Top contenders aiming to launch Spot Bitcoin Exchange-Traded Funds (ETFs) in the United States are revising their filings to comply with regulatory standards that mandate the cash redemption model.
Investment giants BlackRock and Cathie Wood's ARK Invest have made updates to their S-1 registration statement for a proposed spot Bitcoin ETF with the U.S. Securities and Exchange Commission (SEC). The S-1 amendment, filed on December 18, primarily addressed the proposed cash creation and redemption structure for the spot Bitcoin ETF. Both BlackRock and ARK are opting for a cash redemption system rather than a physical one, meaning that transactions will involve non-cryptocurrencies like monetary payments instead of Bitcoin itself.
ARK's registration statement indicated that their ARK 21Shares Bitcoin ETF exclusively permits cash creation and redemption. The filing mentioned potential scenarios for physical creation and redemption of shares, subject to regulatory authorization, but primarily emphasized the cash-based system. Similarly, BlackRock submitted a parallel update, indicating the possibility of physical transactions contingent upon regulatory approval while clarifying the prevalence of cash exchanges.
According to Bloomberg ETF analyst Eric Balchunas, ARK and its ETF partner, 21Shares, initially aimed to avoid cash transactions, attempting a more innovative route through physical redemptions. Balchunas suggested that the recent adjustment in their stance reflects the SEC's firm stance, implying that the debate around this issue might be reaching its conclusion, potentially paving the way for January approval.
Investor and advisor Vance Harwood elaborated on the SEC's “cash-only” prerequisite, explaining that authorized participants (APs) are limited to acquiring additional ETF shares solely by bringing the required amount of cash. Harwood noted that while some funds allow for 'physical' creation, where APs exchange the asset tracked by the ETF for ETF shares, the SEC seems disinclined to permit spot Bitcoin ETFs to follow this route. He commented that the SEC's stance is comprehensible in the given context.
“This will make it clear where the ETF gets its underlying Bitcoins from – the ETF will purchase them from a reputable exchange, whereas if you allow physical transfers you won’t know where the transferred Bitcoins are coming from.”
Global ETF provider WisdomTree also filed an S-1 amendment to its spot Bitcoin ETF, the WisdomTree Bitcoin ETF, on December 18, retaining physical creation and redemption options.
“Authorized participants may surrender baskets in exchange for corresponding amounts of Bitcoin or cash, subject to authorization from registered share holders,” the registration statement reads, adding that APs can create baskets or redeem them via in. - Category options.
Financial lawyer Scott Johnsson predicted in mid-December that ETF applicants would eventually have to succumb to a cash creation and redemption model for their ETFs. Previously, ETF applicants Invesco and Galaxy also updated their S-1 registration statements to "cash only" mode.
