The likelihood of the first spot Bitcoin (BTC) exchange-traded fund (ETF) being approved soon continues to rise after several prominent firms – including BlackRock, ARK Invest, and WisdomTree – updated the S-1 registration statements they filed with the Securities and Exchange Commission (SEC) to allow for cash transactions.
The Dec. 18 S-1 amendments filed by BlackRock and ARK allow for the implementation of a cash creation and redemption model for proposed spot Bitcoin ETFs, with both firms now accepting the cash redemption system rather than in-kind redemptions, which imply non-monetary payments like BTC.
According to the filing by BlackRock, the fund now allows for cash transactions to take place, but only once regulatory approval has been granted.
“These transactions will take place in exchange for cash,” BlackRock’s iShares Bitcoin Trust ETF S-1 amendment reads. “Subject to the Nasdaq Stock Market receiving the necessary regulatory approval to permit the trust to create and redeem shares in-kind for Bitcoin, these transactions may also take place in exchange for Bitcoin.”
The amendments to the BlackRock filing come after representatives from the firm met with the SEC on Nov. 20 to review the proposed in-kind and cash-only redemption models.
The filing for the ARK 21Shares Bitcoin ETF includes similar language.
“To effectuate a creation order, the Authorized Participant will be required to prefund with cash the Trust’s purchase of bitcoin in an amount set by the Sponsor,” the filing read. “The Authorized Participant will be required to transfer the cash deposit amount associated with such creation order to the Trust’s account with the Cash Custodian.”
ARK’s application also left the door open for the possibility of in-kind transactions in the future.
“In the future, the Trust may also permit APs to create and redeem Shares via in-kind transactions, subject to receiving regulatory approval,” the filing said. “By placing a purchase order, an AP would agree that it may transact in cash with a Bitcoin Counterparty who, acting as a counterparty, will deliver to the Trust’s account with the Bitcoin Custodian the amount of bitcoin associated with the purchase order.”
ETF provider WisdomTree also filed an S-1 amendment to their application for the WisdomTree Bitcoin ETF, allowing for cash redemption while also keeping the in-kind creation and redemption option.
“Authorized participants, acting on the authority of the registered holder of shares, may surrender baskets in exchange for the corresponding amount of Bitcoin or cash,” the filing stated. “For a subscription of Shares, the subscription shall be in the amount of either bitcoin represented by the Basket being created or cash needed to purchase the amount of bitcoin represented by the Basket being created, in each case as calculated by the Administrator.”
ETF applicants Invesco and Galaxy updated their S-1 registration statements in recent weeks to include a ‘cash-only’ model. These amendments are seen as the latest effort by the investment managers to increase the likelihood that the SEC will approve the first spot BTC ETF by January at the latest.
“ARK bends the knee, joins the Cash Creations Club in order to make it to the starting gate,” said Bloomberg ETF analyst Eric Balchunas. “I know for [a] fact [that] ARK/21Shares did NOT want to do cash creations, even worked out a creative alt way to do in-kind.. so if they surrendering that tells you SEC not budging, [and the] debate is over, which is prob good if you looking for Jan approval [because] we at 11th hour, holidays about to hit.”
After the filing by BlackRock was made public, Balchunas said, “BlackRock has gone cash only. That’s basically a wrap. Debate over. In-kind will have to wait. It’s all about getting ducks in [a] row [before the] holidays. Good sign.”
Multiple analysts have said this is an indication that the SEC prefers cash-only transactions for Bitcoin ETFs.
“‘Cash only’ means that the APs will only be able to obtain more shares (this is called share creations) of the ETF by bringing the appropriate amount of cash to the table,” said financial consultant Vance Harwood. “Some funds allow ‘in-kind’ creations too. For in-kind creations, the AP brings the asset that the ETF tracks and exchanges it for ETF shares. Apparently, the SEC is not keen on allowing this for spot Bitcoin ETFs.”
“The SEC's position is understandable because it will make it clear where the ETF gets its underlying Bitcoin from – the ETF will buy them, presumably from reputable exchanges, whereas if you allowed in-kind transfers you wouldn't be able to know where the Bitcoin transferred came from,” Harwood said. “The impact of requiring cash only transfers looks minor to me. Yes, it adds two more transactions, but at the scale that these funds run, the impact should be pretty small.”
