BlackRock pivots to cash-based redemptions in spot Bitcoin ETF proposal

BlackRock, the world’s largest asset manager, is finalizing its spot Bitcoin exchange-traded fund (ETF) application, aligning with US financial regulators’ preferences for ‘cash creations’ for fund redemptions.

Bloomberg’s senior ETF analyst Eric Balchunas shed light on this development on Dec. 19, following BlackRock’s filing a day earlier.

Balchunas highlighted BlackRock’s transition to a cash-only approach, signaling an end to the debate over the preferred method for ETF redemption and creation.

“BlackRock has gone cash only. That’s basically a wrap. Debate over. In-kind will have to wait,” he stated.

The revised proposal outlines cash creation and redemption mechanisms for BlackRock’s ETF, adhering to the model advocated by the Securities and Exchange Commission (SEC). Amid growing anticipation, BlackRock joins other firms in updating proposals, with speculations about the SEC approving multiple spot bitcoin ETF applications as early as January.

BlackRock initially submitted its application for the iShares Blockchain and Tech ETF last month, proposing an in-kind redemption model. However, the SEC’s concerns regarding investor safety and market manipulation led to scrutiny of the proposal.

ETFs generally offer two redemption and creation mechanisms: in-kind or cash.

The in-kind structure allows firms to redeem shares for bitcoin held by their ETFs, avoiding market maker spreads and potential tax issues.

In contrast, cash redemptions, preferred by the SEC for safety and accessibility, provide investors with the equivalent cash value of their shares, creating taxable transactions.

Despite pressure from the SEC to amend applications to cash creations, ETF analyst James Seyffart noted that Wisdomtree’s recent filing amendment still allows for in-kind creation and redemption.

Ark Invest and 21Shares adapted their filing to cash creation on Dec. 18, as Balchunas reported.

“I know for a fact ARK/21Shares did NOT want to do cash creations, even worked out a creative alternative way to do in-kind… so if they’re surrendering that tells you SEC not budging, debate is over.”

Eric Balchunas, senior ETF analyst at Bloomberg

This shift towards cash creation might pave the way for a potential January approval of the ETF, according to Balchunas, as the industry reaches a critical juncture before the holiday season.