BlackRock Concedes to SEC Pressure and Will Implement Cash-Only Model for its Bitcoin ETFs

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The Bitcoin ETF applications from entities such as BlackRock, Cathie Wood’s ARK Invest, and WisdomTree have once again encountered a new regulatory obstacle, leading to continuous amendments. These changes were made in response to guidelines established by the SEC, which demands a cash creation and redemption model for these financial products.

Both BlackRock and ARK Invest submitted amendments to their S-1 registration statements, emphasizing their commitment to the cash redemption model. This approach implies that authorized participants can only acquire more ETF shares by contributing the corresponding amount in cash, rather than opting for in-kind redemptions involving non-monetary payments like Bitcoin.

Although ARK’s registration statement suggests the possibility of in-kind transactions, this option is subject to regulatory approval. On the other hand, BlackRock made it clear that in-kind transactions would only take place if the Nasdaq Stock Market receives the necessary approval from regulators.

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The SEC Throws Another Spanner in the Works for Bitcoin ETFs, More Barriers, Less Freedom

It is important to note that the SEC’s stance, requiring a “cash-only” approach, led to similar adjustments by other applicants, such as Invesco and Galaxy, who also modified their S-1 statements to comply with this model. More importantly, it is not a measure requested to enhance transparency; rather, it is simply another obstacle for the applications. Whether it’s to consider withdrawal or simply delay.

The widespread acceptance of the cash redemption model indicates that applicants are willing to adapt to regulatory requirements to progress in the approval of Bitcoin ETFs. Instead, the regulatory body leaves no other option or room for action or negotiation. According to Bloomberg ETF analyst Eric Balchunas, ARK’s willingness to accept cash redemption indicates that the SEC is not yielding in its requirements. Despite this and the new regulations, it could be a positive indicator for potential approval in January.

This shift towards cash redemption has implications for supposed transparency. The SEC aims to ensure that the underlying source of Bitcoins in the ETF is clear and traceable, in contrast to in-kind transactions that could hinder the identification of the origin of digital assets. In reality, it is merely a control mechanism to regulate and identify the actions of investors, another blow to financial freedom.

Meanwhile, WisdomTree retained the option of in-kind creation and redemption in its S-1 statement, highlighting differences in approaches among applicants regarding the SEC’s preferred model. We will have to wait a few more days to see how the applications evolve and whether the SEC continues to increase regulatory pressure.


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