Blackrock Adopts Cash Creation Model for Spot Bitcoin ETF

Blackrock Adopts Cash Creation Model for Spot Bitcoin ETF

Blackrock, the world’s largest asset manager, has made a significant decision regarding its spot bitcoin exchange-traded fund (ETF). The company has chosen to adopt the cash creation model, following the U.S. Securities and Exchange Commission’s preference for this approach over the in-kind model. By filing an amendment to its ETF filing, Blackrock has made it clear that it will issue shares in baskets and redeem them for cash, with the possibility of including bitcoin transactions in the future. This move signifies an important development in the ongoing debate surrounding the use of different models for bitcoin ETFs.

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Blackrock Yielded to SEC’s Preference

Blackrock, the world’s largest asset manager, has acquiesced to the U.S. Securities and Exchange Commission (SEC)’s preference for the cash creation model rather than the in-kind model for its spot bitcoin exchange-traded fund (ETF). This decision comes after several discussions between Blackrock and the SEC regarding the structure of the ETF. The SEC has been in favor of the cash creation model due to concerns about the liquidity and oversight of the underlying assets. By adopting the cash creation model, Blackrock aims to address these concerns and ensure regulatory compliance.

Amendment to Spot Bitcoin ETF Filing

To reflect its adoption of the cash creation model, Blackrock filed an amendment to its spot bitcoin ETF filing. The amendment details that Blackrock’s Ishares Bitcoin Trust will issue shares in baskets of 40,000 or integral multiples thereof. These shares can be redeemed by the Trust in exchange for the cash proceeds from selling the corresponding amount of bitcoin. In addition, the amendment mentions the possibility of future in-kind transactions, subject to regulatory approval. This update in the filing demonstrates Blackrock’s commitment to implementing the cash creation model while leaving room for potential changes in the future.

Switching Ticker to IBIT

As part of its spot bitcoin ETF filing amendment, Blackrock decided to switch the ticker for its ETF from IBTC to IBIT. The decision to change the ticker was made to avoid confusion internally and ensure clarity for investors. IBTC was already being used by Blackrock in Europe for a treasury ETF, making the ticker overlap potentially confusing. By switching to IBIT, Blackrock aims to streamline its branding and provide a ticker that is easily recognizable and accessible to investors.

Discussions with the SEC

Blackrock has engaged in several discussions with the SEC to address the concerns raised regarding its spot bitcoin ETF application. These discussions centered around the use of the cash creation model versus the in-kind model. While Blackrock initially favored the in-kind model, which involves the creation and redemption of ETF shares in exchange for the underlying bitcoin, the SEC expressed reservations about the oversight and liquidity of the in-kind model. In response, Blackrock proposed a revised in-kind model that it believed would resolve the SEC’s concerns. However, after further discussions, Blackrock decided to yield to the SEC’s preference for the cash creation model.

Blackrock’s Preference for In-kind Model

Blackrock’s initial preference for the in-kind model was driven by several factors. The in-kind model allows for the direct creation and redemption of ETF shares in exchange for the underlying bitcoin, providing investors with exposure to the cryptocurrency market without the need to hold the actual assets. This model can also contribute to the efficient pricing of the ETF and facilitate arbitrage opportunities. However, the SEC had concerns about the oversight and liquidity of the underlying assets in the in-kind model, prompting Blackrock to reconsider its approach.

Blackrock’s Revised In-kind Model Proposal

In an effort to address the SEC’s concerns and maintain its preference for the in-kind model, Blackrock proposed a revised in-kind model for its spot bitcoin ETF. The revised model included enhanced oversight and reporting mechanisms to ensure the proper valuation and custody of the underlying bitcoin. Blackrock believed that these revisions would address the SEC’s concerns while still providing investors with the benefits of the in-kind model. However, after discussions with the SEC, Blackrock ultimately decided to adopt the cash creation model.

Social Media Announcement by Balchunas

Eric Balchunas, a Bloomberg ETF analyst, took to social media to announce Blackrock’s adoption of the cash creation model for its spot bitcoin ETF. Balchunas stated that “Blackrock has gone cash only. That’s basically a wrap. Debate over. In-kind will have to wait. It’s all about getting ducks in row bf holidays. Good sign.” This announcement highlights the significance of Blackrock’s decision and the resolution of the long-standing debate surrounding the choice between the cash creation model and the in-kind model.

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Final Decision and Debate Conclusion

With Blackrock’s adoption of the cash creation model for its spot bitcoin ETF, the debate surrounding the choice of model has come to a conclusion. The SEC’s preference for the cash creation model has prevailed, signaling a shift in the regulatory landscape for bitcoin ETFs. This decision by Blackrock, as the world’s largest asset manager, is expected to influence other market participants and potentially pave the way for the approval of additional bitcoin ETFs. The finality of the decision provides clarity for investors and market participants, allowing them to make informed decisions regarding their exposure to bitcoin through ETFs.

User Opinions

The adoption of the cash creation model by Blackrock for its spot bitcoin ETF has generated mixed opinions among users. Some users view this decision as a positive development, as it aligns with the SEC’s preferences and addresses concerns related to the liquidity and oversight of the underlying assets. They believe that the cash creation model will provide a more transparent and regulated structure for bitcoin ETFs, which can attract a wider range of investors and improve the overall market infrastructure. Other users, however, express disappointment over the abandonment of the in-kind model, which they believe offers unique advantages such as more efficient pricing and increased arbitrage opportunities. They argue that the cash creation model may limit the potential benefits of bitcoin ETFs and hinder their growth and adoption.

Overall, the user opinions reflect the ongoing debates and differing perspectives within the cryptocurrency community regarding the optimal structure for bitcoin ETFs. As the market continues to evolve and regulatory frameworks develop, it remains to be seen how the choice between the cash creation model and the in-kind model will impact the growth and accessibility of bitcoin ETFs.

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