The involvement of banks in the issuance of the Bitcoin Spot ETF, a recent initiative by BlackRock, represents a major step in the convergence between traditional financial institutions and the world of cryptocurrencies. This move could not only facilitate the entry of institutional capital into the sector, but also redefine the way cryptocurrencies are perceived and managed within the global financial system.
Banks could play a vital role in issuing spot bitcoin ETFs
BlackRock presented on Tuesday, November 28, 2023, added a new model to its Spot Bitcoin ETF application in collaboration with banking institutions. This update would allow a significant influx of capital into Bitcoin by making traditional financial institutions more accessible.
If the BlackRock spot Bitcoin ETF application is approved, this amendment will empower banks to participate as an “authorized participant” (AP) in the ETF issuance process. This amendment would allow banks to own bitcoins while avoiding previous administrative restrictions.
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There are 3 models listed in the proposal to revise the bitcoin spot ETF buyback mechanism:
The first, original redemption model called “In Kind”: here, APs play a vital role in facilitating buybacks for investors. They receive bitcoin directly from the issuer when redeeming ETF shares, thereby managing the conversion to dollars, limiting the impact on the price of bitcoin.
2. cash buyback model: This model, favored by the SEC, requires the issuer to sell bitcoins in the market to repay the AP in cash, which it then redistributes to investors. Access Points have less asset management, with the ETF issuer taking care of the conversion.
The 3rd model is a revision of the “In Kind” redemption model: This model offers access points more flexibility and allows them to more efficiently manage bitcoin buybacks and fluctuations. It represents an evolution of the traditional ‘In Kind’ model with tax benefits and better risk management.
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In this 3rd and new proposed model, access points would transfer funds to a broker, who would then convert them to bitcoins. These would then be held by the ETF issuer, in this case Coinbase Custody for BlackRock ETFs.
Schematic of the “In-Kind” model revised by BlackRock
BlackRock claims this revised model provides greater resistance to market manipulation, an issue frequently cited by the SEC and its chairman, Gary Gensler, when they rejected previous spot applications for bitcoin ETFs. This structure also aims to strengthen investor protection, reduce transaction costs and simplify the issuance of Bitcoin ETFs.
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From December 8 to 12, 2023, the SEC welcomed 4 spot applicants for Bitcoin ETFs, including BlackRock and Grayscalewhich has already been received several times during the previous 2 weeks.
Nothing groundbreaking to report, but 4 different issuers have met with the SEC regarding their #Bitcoin ETF applications in recent days. @Black stone met them yesterday for the third time in as many weeks. While @GrayscaleFranklin and @Fidelity everyone had meetings last week pic.twitter.com/5gwBk83m0o
— James Seyffart (@JSeyff) December 12, 2023
Although the SEC has until mid-March 2024 to issue a final verdict on spot bitcoin ETF applications, ETF analysts predict decisions could be announced between January 5 and 10, 2024the date the SEC will have to make a final decision on the Ark Invest & 21Shares ETF.
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Source: Securities and Exchange Commission
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First attracted by the lure of profit, now I’m trapped deep down the rabbit hole. With no way out, I just have to share my knowledge and convey the passion I have for the blockchain world. I am also the creator of Adopt a Block, an educational site dedicated to Bitcoin.
Marius Farashi Tasooji
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