BlackRock aims to facilitate the participation of Wall Street banks in its potential Bitcoin ETF approval. Recent SEC memo detailing a late November meeting involving BlackRock, Nasdaq, and the Commission. During this meeting, they discussed feedback regarding BlackRock’s Bitcoin ETF application.
The proposed approach introduces an innovative method for the redemption of ETF shares. A Bitcoin ETF would enable fund investors to gain exposure to Bitcoin without directly purchasing or storing the cryptocurrency. While the SEC has hesitated to approve such ETFs due to concerns about Bitcoin market manipulation, this new strategy addresses those worries.
The SEC has yet to decide on BlackRock’s iShares Bitcoin Trust (IBTC) application, with the deadline set for January 15. Analysts anticipate a decision will be issued for several spot Bitcoin ETF applications earlier in January.
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BlackRock ETF Details
The recent meeting was a follow-up to a previous one on November 20, during which the SEC expressed concerns about BlackRock’s share redemption model. The initial proposal involved a T+1 settlement, starting with a broker-dealer delivering IBTC shares to a transfer agent. The issuer would then instruct the custodian (Coinbase Custody) to send Bitcoin backing the shares to a crypto market maker, who would close a short Bitcoin position.
The T+1 redemption process aligns with the SEC’s newly approved rules mandating stock and ETF settlements within one business day, effective late May 2024. The updated settlement approach suggested by BlackRock initiates redemption orders with cryptocurrency market makers providing cash to the broker-dealer, streamlining the process before large Wall Street banks (authorized participants) become involved.
While BlackRock did not provide explicit details, it claimed that this new method enhances resistance to market manipulation, which addresses the SEC’s primary concern. It also aims to simplify and harmonize the ecosystem.
For many major financial institutions, custody of digital assets often involves third-party firms. The revised redemption process would likely encourage more institutional investment in the Bitcoin ETF by making share redemption faster and less risky for these entities that manage substantial assets for clients.
