The race to receive regulatory approvals for bitcoin spot exchange-traded funds (ETFs) continued on Monday with a trio of new filings that suggested asset managers are capitulating to the U.S. Securities and Exchange Commission’s (SEC) preferred redemption strategy, a move that could smoothen the path toward approval.
BlackRock, the world’s largest asset manager, updated its proposal for the iShares Bitcoin Trust to now include cash, rather than in-kind redemptions, according to an amended S-1 filing. The Cathie Wood-linked ARK 21Shares Bitcoin ETF and WisdomTree also filed similar amendments on Monday.
The in-kind redemption model allows investors to redeem their fund shares for the bitcoin held in the ETF. Cash creation, a model that’s not uncommon in the broader ETF world or even among bitcoin futures ETFs, means that the funds will have to convert bitcoin into cash when returning the shares to investors, which the SEC generally feels is safer.
What do these changes mean to the average person looking to invest in these ETFs? Not a lot, said Bloomberg ETF analyst James Seyffart. The difference will be manifest on the backend, affecting how the ETF transacts with authorized participants and market makers who provide the liquidity needed to help keep an ETF’s price in line with its net asset value (NAV) and who hand over cash to the fund to create new shares.
“When [the ETFs] create the new shares, they have to immediately get bitcoin with that cash that was handed to them,” said Seyffart in a phone call with Unchained. “Basically, there’s a lot more nuance and difference depending on how efficient people are in that process of turning cash into bitcoin and turning bitcoin into cash before creating and redeeming shares.”
Fund issuers that have a good trading desk and ready access to liquidity could have an advantage for their ETF, noted Seyffart.
In-Kind Still on the Table?
The SEC has held meetings in recent weeks with the funds behind the more than a dozen spot bitcoin ETF filings. Late last month, the SEC met with BlackRock and Nasdaq Stock Market employees to discuss Nasdaq’s desired listing of the iShares Bitcoin Trust. BlackRock made a presentation comparing the in-kind versus cash redemption models, according to an SEC memorandum. The amended filings suggest the SEC’s preference between the two.
BlackRock still hopes to go back to the in-kind redemptions at some point for the iShares Bitcoin Trust, which now has the potential ticker IBIT.
“The Trust issues and redeems baskets on a continuous basis. These transactions will take place in exchange for cash,” BlackRock wrote in the filing. “Subject to the in-kind regulatory approval, these transactions may also take place in exchange for bitcoin.”
WisdomTree Bitcoin Fund had the most confusing of the amendments, appearing to include in-kind redemptions, rather than just referring to them as a possibility.
“The Trust issues and redeems Baskets on a continuous basis. Baskets are only issued or redeemed in exchange for an amount of bitcoin or cash determined by the Trustee on each day that the Exchange is open for regular trading,” wrote WisdomTree in its filing.