BlackRock Makes Compelling Case for Bitcoin ETF in Latest SEC Meetup

Bloomberg ETF analyst Eric Balchunas has highlighted another meeting between investment asset management firm BlackRock and the SEC’s Trading & Markets division to negotiate on the former’s spot Bitcoin ETF application. 

BlackRock Meets the SEC Again

BlackRock initially met with the SEC a week ago over the choice of cash model summary or “in-kind” redemption model for the impending ETF offering. The SEC advised the spot Bitcoin ETF applicants to adopt cash creates for the ETFs as against in-kind model of redemption. 

The prominent investment manager tried to define the distinctions between the two models by sharing a document. In the end, it was obvious that BlackRock, like many other candidates for spot Bitcoin ETF, prefers the in-kind redemption model. Their preference is based on the fact that this model would mitigate the restrictions placed on broker-dealers 

This time around, Balchunas noted that the investment manager presented the regulator with a “revised” in-kind model design based on its staff’s comments. According to the memo, the meeting between both parties was centered on NASDAQ Stock Market LLC’s proposed rule change to list and trade shares of the iShares Bitcoin Trust. 

Markedly, the regulator seems to have some concerns about the in-kind redemption model chosen by BlackRock. There are fears of its impacts on the balance sheet and the risks to the Market Maker’s United States broker/dealer entity (MM-BD). Hence, the presentation of a revised version of the in-kind model. 

BlackRock’s Revised In-Kind Model

For the current in-kind redemption flow, the MM-BD places an order through an Authorized Participant (AP) after which the ETF issuer approves the order. Next, “MM-crypto borrows Bitcoin (or cash) to sell short Bitcoin (or Bitcoin futures)”. Thereafter, the MM-BD delivers the ETF shares to a Transfer Agent through the AP. 

Meanwhile, in the revised in-kind model, the MM-crypto first delivers cash to the MM-BD who then delivers the ETF shares to the Transfer agent. From here, the issuer instructs BTC custodian to transfer the coin to the MM-crypto which closes short position in Bitcoin. 

This model caters to many needs of investors including the provision of lower transaction fees, superior resistance to market manipulation and reduction in risks of operating events amongst many other benefits. This meeting and the flexibility in BlackRock’s methods shows how much the banking giant is committed to allay the regulator’s fears in a bid to gain approval for the much coveted product.

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