BlackRock, ARK Review Bitcoin ETF Plans Against SEC Cash-Only Model

Major issuers of BTC exchange-traded funds (ETFs) in the United States are updating their filings to comply with the cash redemption model required by securities regulators.

Investment manager BlackRock and Cathy Wood's ARK Invest have updated their S-1 registration statements for a single space Bitcoin ETF with the US Securities and Exchange Commission (SEC).

Filed on December 18, the S-1 amendments to the proposed space Bitcoin ETFs relate to a cash creation and redemption model, with BlackRock and ARK accepting cash redemptions instead of redemptions in kind, which refers to non-cash payments like BTC.

ARK's registration statement hinted that its ARK 21Shares Bitcoin ETF only allows for cash creations and redemptions. The document mentions “creation and redemption of shares in kind,” stating that the ETF may also allow authorized participants to create and redeem shares in kind transactions, subject to regulatory approval.

BlackRock subsequently filed a similar update, stressing that in-kind transactions are possible but only subject to regulatory approval.

The S-1 amendment to the BlackRock iShares Bitcoin Trust ETF states: “These transactions are carried out in cash;

“Subject to the receipt of the necessary regulatory approvals by the Nasdaq Stock Market Trust to create and redeem shares in kind for Bitcoin, these transactions may be made in exchange for Bitcoin.”

According to Bloomberg ETF analyst Eric Balchunas, ARK and its ETF partner, 21Shares, did not seek to create financial innovations and developed an innovative alternative mechanism for in-kind redemptions. “So if they give up, this tells you the SEC hasn't activated, the debate is over, which is probably good if you're looking for January approval,” the analyst wrote.

The SEC's “cash-only” requirement means that authorized participants (AP) can acquire additional ETF shares only by bringing an appropriate amount of cash to the table, said investor and consultant Vance Harwood.

Related: Spot Bitcoin ETF Will Be ‘Bloodbath' For Crypto Exchange, Says Analyst

Some funds also allow ‘in-kind' creation. For in-kind creations, the APA takes the assets the ETF tracks and exchanges them for ETF shares. Apparently, the SEC is not interested in allowing this for spot Bitcoin ETFs, Harwood said. The SEC's position is “understandable,” he added.

“The ETF makes it clear where it gets the original Bitcoin – the ETF buys them, probably from popular exchanges, if they allow in-kind transfers, you can't tell where the transferred Bitcoin came from.”

Global ETF provider WisdomTree filed an S-1 amendment on Dec. 18 with its bitcoin ETF, the WisdomTree Bitcoin ETF, while maintaining an in-kind creation and redemption option.

“Authorized participants, acting on the authority of the registered owner of the shares, can deliver baskets in exchange for the corresponding Bitcoin or cash,” reads the registration statement, adding that APNs can create baskets or redeem them in – Kind option.

Financial attorney Scott Johnson predicted in mid-December that ETF applicants will finally have to bend the knee to take advantage of the ETF's cash creation and redemption model. Earlier ETF applicants Invesco and Galaxy updated their S-1 registration statements with a “cash only” model.

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