BlackRock’s Bold Move: Appoints Third-Party for BTC ETF Amidst Regulatory Scrutiny

• BlackRock’s Bitcoin ETF faces uncertainty with a third-party agent, and the SEC’s approval remains uncertain.

• Coinbase’s involvement raises regulatory concerns, as it’s entangled in a legal battle with the SEC.

BlackRock, the world’s largest asset management firm, has made a significant move by amending its ETF application. The amendment involves the appointment of a ‘Prime Execution Agent,’ a third-party broker responsible for buying and selling Bitcoin on behalf of the fund. While BlackRock pushes forward with its preparations, questions loom over whether the Securities and Exchange Commission (SEC) will give its stamp of approval.

This development takes aback the SEC, and there are questions about whether the agency will approve a Bitcoin ETF that uses a prime execution agent. The agent’s role in buying Bitcoin under the cash model is the main concern for the SEC, as this procedure may not meet the regulator’s standards.

Coinbase in the Spotlight

The identity of the Prime Execution Agent selected by BlackRock remains unknown. Recalling that Coinbase was initially named as the custodian when registering the Bitcoin ETF in June is important. However, Coinbase and the SEC are currently engaged in a legal dispute over Coinbase’s operation of an unregistered stock exchange, which occurred earlier this year. 

Tensions between the business and the regulatory agency may increase if Coinbase is used as a third-party broker because the SEC has constantly monitored U.S.-based cryptocurrency exchanges this year.

Amid these changes, the SEC has pushed for a redemption technique called “cash create.” This ETF share formation and redemption strategy does not prioritize ‘in-kind’ techniques using comparable assets over cash transactions. The SEC’s inclination for cash-based procedures complicates the ongoing debates over approving Bitcoin ETFs.

We hearing it wasn't one giant conf call b/t SEC and every issuer but rather many calls to exchanges/issuers to reiterate that its Cash Creates or You Will Wait, which we knew already via chatter and the updated S-1s this week. Still, interesting & good sign for Jan tho @JSeyff

— Eric Balchunas (@EricBalchunas) December 21, 2023

Optimism Amidst Uncertainty

The ETF market is still quite optimistic despite the regulatory concerns and uncertainties. Though it’s a cautiously optimistic estimate, senior ETF analyst James Seyffart observes that the chances of approval by January 10, 2024, are about 90%. The industry is still ablaze with anticipation for early January batch approvals.

Will be interesting to see who updates their documents after this. SEC might not be comfortable with a Prime Execution Agent (a 3rd party buying and selling bitcoin on behalf of the ETF) purchasing the #Bitcoin in the cash model . This is how BlackRock's is planned at moment: https://t.co/pGWUNp7Lw3 pic.twitter.com/2D60KX7OUI

— James Seyffart (@JSeyff) December 21, 2023

Seyffart also explained which issuers changed their files to allow cash redemptions. For example, Bitwise was among the first to make this change, reflecting how Bitcoin ETF applications were developing.

BlackRock is not merely relying on amendments to its ETF application. The company intends to seed its investment product with a sizeable $10 million as a preventative measure. Comparing this to the original $100,000 seeding in October, there has been notable growth. Notably, BlackRock plans to seed this $10 million on January 3, 2024, a week before the projected clearance date. The timing of this signals that BlackRock is possibly getting ready to release its ETF soon after receiving regulatory permission.

The Broader ETF Landscape

The spotlight on BlackRock’s Bitcoin ETF amendment is just one facet of a broader landscape. Major financial firms have taken notice of this achievement; as a result, companies such as Fidelity and BlackRock have submitted several applications to become spot Bitcoin exchange-traded funds (ETFs).

These apps highlight the increasing interest in providing real-time exposure to Bitcoin for investors, indicating a change in the way traditional financial markets value and access this digital currency.

BlackRock’s updated S-1 filing highlights the company’s dedication to establishing robust ETF operation procedures. This systematic approach guarantees a smooth operation upon receiving regulatory approval.