(CTN News) – BlackRock and ARK Invest, among other companies, have made revisions to their Bitcoin ETF filings by incorporating cash redemption models.
This adjustment indicates a response to the demands put forth by the Securities and Exchange Commission (SEC). As the deadline of January 10 for the SEC to approve or reject a spot Bitcoin ETF approaches, it is apparent from the updated filings that the SEC is specifically requesting cash redemption models for these funds.
This marks a significant shift as these funds would be the first to track physically-backed Bitcoin rather than Bitcoin futures contracts. Notably, BlackRock, ARK Invest, and other firms have recently transitioned from various in-kind redemption models to cash redemption in their filings.
BlackRock to temporarily halt in-kind redemption option.
BlackRock, the largest asset manager in the world, has made changes to its S-1 filing by temporarily setting aside the preferred in-kind redemption mechanism. Instead, the company will now offer cash creation and redemption options to investors.
Initially, BlackRock had planned to include in-kind redemptions, allowing investors to redeem their fund shares for the bitcoin held within the investment vehicle.
However, the Securities and Exchange Commission (SEC) has mandated that the firm convert the crypto asset into cash when returning shares to investors. This revised cash model has potential implications for the overall cost of the fund.
While most ETFs use the in-kind redemption model, which involves swapping underlying assets with a market maker, the cash redemption model incurs higher transaction costs.
Bryan Armour, an ETF analyst at Morningstar, suggests that the SEC’s motive behind the cash redemption requirement may be to prevent broker-dealers from directly handling bitcoin.
By enforcing cash redemption, the SEC can maintain oversight of the entire process, even if broker-dealers are prohibited from handling the crypto asset.
BlackRock, Grayscale, and Hashdex have presented different redemption models to the SEC, but Matt Hougan, chief investment officer of Bitwise Asset Management, believes that the decision to enforce cash redemptions is not a determining factor for launching the first spot bitcoin ETFs.