Bitcoin ETF Hurdles: Cash Redemptions, Hard Forks, Authorized Participant Disclosure Discussions With SEC – BlackRock (NYSE:BLK)

The discussions around the approval of a Bitcoin exchange-traded fund (ETF) have been ongoing, with firms engaging in multiple meetings with the U.S. Securities and Exchange Commission (SEC). These discussions have focused on various aspects, including the redemption model, hard forks in blockchain technology, and the redemption model of the ETFs.

One of the primary areas of discussion has been the redemption model for these ETFs. Traditionally, ETFs follow either an “in-kind” or cash redemption model. The former allows investors to exchange shares for the underlying securities or commodities without triggering tax penalties. However, the SEC has reportedly been urging ETF issuers to adopt a cash redemption model.

Grayscale Investments and BlackRock Inc., industry giants in the ETF space, have been urged by the SEC to adopt a cash redemption model. Grayscale, initially advocating for an in-kind redemption model, eventually yielded to the SEC’s preference. In a recent meeting, Grayscale proposed offering both in-kind and cash redemption models, but the SEC insisted on a cash model, leading Grayscale to amend its S-3 form and accept the cash model.

Another issue raised in these discussions is the issue of hard forks in blockchain technology. When a blockchain undergoes code modifications and a new version emerges, it triggers a fork. Industry players have reportedly reached a consensus on protocols to handle potential hard forks. In the event of a fork diverting from the main chain, trusts associated with the ETFs are expected to relinquish any entitlements.

Firms have also clarified their positions on receiving tokens through hard forks or airdrops. Grayscale, in its amendment to the S-3 form, explicitly stated that its spot Bitcoin ETF, if approved, would not receive any tokens through these processes.

The SEC has also asked issuers to disclose authorized participants, a step not traditionally taken in the industry. BlackRock, among others, has complied, naming broker-dealers such as Jane Street Capital and JPMorgan Securities LLC as authorized participants.

The meetings between major exchanges like NYSE, Nasdaq Composite, and the Chicago Board Options Exchange with the SEC have sparked speculation about the timing and potential approval of a spot Bitcoin ETF. Traders and investors are closely monitoring the developments in this space, as the approval of a Bitcoin ETF could have significant implications for the cryptocurrency market.

In conclusion, the discussions around the approval of a Bitcoin ETF have primarily focused on the redemption model, handling of hard forks, and disclosure of authorized participants. While the SEC has been urging ETF issuers to adopt a cash redemption model, industry players have reached a consensus on protocols to handle potential hard forks. The outcome of these discussions and potential approval of a Bitcoin ETF will be closely watched by market participants.

Leave a Reply

Your email address will not be published. Required fields are marked *