BlackRock Bends the Knee on Cash-Only Bitcoin ETF Redemptions

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Asset manager BlackRock is making the final adjustments to its spot Bitcoin exchange-traded fund (ETF) application. The latest move is to agree to ‘cash creations’ for fund redemptions—in line with what US financial regulators are pushing.

On December 19, Bloomberg senior ETF analyst Eric Balchunas commented on BlackRock’s filing the previous day.

BlackRock Bitcoin ETF Cash Only

“BlackRock has gone cash only,” he said before adding, “That’s basically a wrap. Debate over. In-kind will have to wait.”

BlackRock is the last of the major ETF issuers to ‘bend the knee’ to the Securities and Exchange Commission on cash-only redemptions. However, Balchunas said it was a good sign.

“It’s all about getting ducks in a row before holidays. Good sign.”

He explained that the firm will accept cash and then Bitcoin to create new shares and vice versa. Participants will not be able to supply BTC in exchange for ETF shares.

The asset manager had previously submitted a proposal for a hybrid in-kind ETF redemption mechanism. However, the SEC has pushed for cash redemptions only, rejecting any in-kind model for now.

There are two methods by which funds can issue and redeem shares: cash creation and in-kind.

In-kind redemptions, favored by traditional ETFs, allow the issuer to exchange the fund’s underlying assets. In other words, Bitcoin would be used to create shares rather than cash. This is better for the company as it avoids market maker spreads and potential tax issues.

Cash redemptions require the fund issuer to accept cash to buy the underlying asset and sell the Bitcoin to distribute cash back to redeeming shareholders. This version is better for the participants and preferred by the SEC. However, it creates taxable transactions.

Bitcoin ETF Latest

The SEC has pressured issuers into amending their applications to cash creations. However, ETF analyst James Seyffart observed that Wisdomtree’s latest filing amendment leaves open the ability to still do in-kind creation and redemption.

On December 18, Ark Invest and 21Shares “bent the knee,” amending their filing to cash creation, as reported by Balchunas. He added that the SEC is immovable on this issue.

“I know for a fact ARK/21Shares did NOT want to do cash creations, even worked out a creative alt way to do in-kind… so if they’re surrendering that tells you SEC not budging, debate is over,”

However, this is “probably good for a January approval,” he added, with things being at the “eleventh hour” before the holidays hit.