Major applicants for a spot Bitcoin (BTC) exchange-traded fund (ETF) in the United States are amending their filings to comply with the cash redemption model demanded by securities regulators.
Investment manager BlackRock and Cathie Wood’s ARK Invest have updated their S-1 registration statements for a spot Bitcoin ETF with the U.S. Securities and Exchange Commission (SEC).
Filed on Dec. 18, the S-1 amendments relate to the cash creation and redemption model for proposed spot Bitcoin ETFs, with BlackRock and ARK accepting the cash redemption system rather than in-kind redemptions, which imply non-monetary payments like BTC.
ARK’s registration statement hinted that its ARK 21Shares Bitcoin ETF would only allow cash creations and redemptions. The document mentioned “potential in-kind creation and redemption of shares,” stating that the ETF may also permit authorized participants to create and redeem shares via in-kind transactions, subject to regulatory approval.
BlackRock subsequently filed a similar update, stressing that in-kind transactions may take place but only subject to regulatory approval.
“These transactions will take place in exchange for cash,” BlackRock’s iShares Bitcoin Trust ETF S-1 amendment reads, adding:
“Subject to the Nasdaq Stock Market receiving the necessary regulatory approval to permit the trust to create and redeem shares in-kind for Bitcoin, these transactions may also take place in exchange for Bitcoin.”
According to Bloomberg ETF analyst Eric Balchunas, ARK and its ETF partner 21Shares did not want to do cash creations and even worked out a creative alternative method to do in-kind redemptions. “So if they surrender, that tells you SEC not budging, the debate is over, which is probably good if you are looking for January approval,” the analyst wrote.
The SEC’s “cash-only” requirement means that the authorized participants (AP) will only be able to obtain more shares of the ETF by bringing the appropriate amount of cash to the table, according to investor and consultant Vance Harwood.
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“Some funds allow ‘in-kind’ creations too. For in-kind creations, the AP brings the asset that the ETF tracks and exchanges it for ETF shares. Apparently, the SEC is not keen on allowing this for spot Bitcoin ETFs,” Harwood noted. He added that the SEC’s position is “understandable,” stating:
“It will make it clear where the ETF gets its underlying Bitcoin from — the ETF will buy them, presumably from reputable exchanges, whereas if you allowed in-kind transfers you wouldn't be able to know where the Bitcoin transferred came from.”
The global ETF provider WisdomTree also filed for an S-1 amendment to its spot Bitcoin ETF, the WisdomTree Bitcoin ETF, on Dec. 18, keeping the in-kind creation and redemption option.
“Authorized participants, acting on the authority of the registered holder of shares, may surrender baskets in exchange for the corresponding amount of Bitcoin or cash,” the registration statement reads, adding that APs may be able to create a basket or redeem through the in-kind option.
Finance lawyer Scott Johnsson predicted in mid-December that ETF applicants would eventually have to bend their knee to using a cash creation and redemption model for their ETF. Previously, ETF applicants Invesco and Galaxy also updated their S-1 registration statements with the “cash-only” model.
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