Bitcoin ETF issuers submit to SEC on cash creation regulation

Asset manager BlackRock is making the final adjustments to its Bitcoin Exchange-Traded Fund (ETF) app. The latest move is to agree to bail out ‘financial innovators' under pressure from US financial regulators.

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

BlackRock Bitcoin ETF Cash only

“It's basically a wrap,” before adding, “Black Rock just went cash-only.” The argument is over. It should be protected in kind. ”

BlackRock is the latest of the major ETF issuers to ‘bow the knee' to the Securities and Exchange Commission over cash-only redemptions. However, Balchunas said it was a good sign.

“It's all about getting the ducks in a row before the holidays. A good sign.”

The company explained that it accepts cash and then Bitcoin to create new shares and vice versa. Participants may not offer BTC in exchange for ETF shares.

The asset manager has already submitted a proposal for a hybrid ETF redemption scheme. However, the SEC has only pushed for cash redemptions, rejecting any such model for now.

Read more: How to prepare for a Bitcoin ETF: A step-by-step approach

Funds There are two ways to issue and redeem shares: cash creation and in-kind.

Redemptions in kind, favored by traditional ETFs, allow the issuer to exchange the fund's underlying assets. In other words, Bitcoin is used to create shares rather than cash. This is better for the company as it avoids distribution of market makers and potential tax issues.

Cash redemptions require the issuer to receive cash to purchase the underlying asset and sell the bitcoins to distribute the proceeds to the redeeming shareholders. This version is better for participants and preferred by SEC. However, it creates taxable transactions.

Bitcoin ETF latest

The SEC has pressured issuers to improve their filings on cash innovations. However, ETF analyst James Seifert noted that Wisdomtree's latest update opens up the ability to make in-kind creations and redemptions.

On Dec. 18, Arch Invest and 21 shares “kneeled” their filings, upgrading them to bankruptcy, as reported by Balchunas. He added that the SEC is not moving in this matter.

“I know for a fact that ARK/21 shares didn't want to make money, they made a creative way to do it in kind… So if the SEC is telling you not to mess with them, then the debate is over.”

However, this is “probably good for January,” he added, adding that things are at the “eleventh hour” before the holidays.