As DL News reported, BlackRock and Nasdaq met with the SEC on Nov 20 to discuss how its spot Bitcoin ETF will work, including how the fund handles investors exiting and redeeming the value of their shares.
According to DL News, the redemption model is the key for the SEC to approve ETFs. While the SEC requires issuers to adopt cash redemption (meaning that investors’ shares would sold by the fund company and then returned as cash) in order to remove a barrier to entry for new ETFs, BlackRock or Ark prefer in-kind redemption, in which market makers would receive Bitcoin in return that would later be sold for cash.
BlackRock’s desire comes from the fact that repaying in Bitcoin will be more tax efficient. Bloomberg Intelligence ETF analyst James Seyffart also said that this is the “cleanest structure”. On the other hand, analyst Eric Balchunas supports the SEC’s cash redemption: “Cash creates makes sense. Broker dealers cannot deal in Bitcoin so doing cash creates puts onus on issuers to transact in Bitcoin and keeps broker dealers from having to use unregistered subsidiaries or third party firms to deal with Bitcoin”.
There are only 2-3 spot Bitcoin spot ETF filings adopting cash redemption so the SEC could continue to delay approval of this fund. However, there’s still a 90% chance for approval by next year.
The SEC delayed the ETF proposals of Franklin Templeton, Global X, Hashdex and Grayscale. Thus, the scenario of the SEC all 12 spot Bitcoin ETFs has not happened. BlackRock last week filed for a spot Ethereum ETF called iShares Ethereum Trust, becoming the second ETF proposal filed by this financial giant after iShares Bitcoin Trust. Some market makers are looking to provide liquidity for the spot Bitcoin ETF including Jane Street, Virtu Financial, Jump Trading and Hudson River Trading.