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Wednesday, May 22, 2024

BlackRock Revises Spot Bitcoin ETF Proposal to Permit Cash Redemptions

The world’s largest asset manager, BlackRock, updated its proposed filing for a spot bitcoin exchange-traded fund, now called IBIT, to allow cash redemptions. That could help it secure approval from the U.S. Securities and Exchange Commission, significantly expanding average investor access to the cryptocurrency. Crypto prices rose on the news.

Amid many regulatory concerns, the SEC has been reluctant to approve any spot ETFs despite applications from traditional finance heavyweights like Fidelity Investments and Grayscale Investments. However, investor demand for a spot bitcoin ETF is vital, and the SEC may be willing to approve such a product once it determines the market is ready for it.

While severalmany applicants have been using the “in-kind” creation method for their ETFs, which allows investors to redeem their ETF shares for bitcoin, the SEC has preferred cash-only redemption models, which avoid triggering taxable events for shareholders. BlackRock’s amended filing aligns the IBIT with the SEC’s preferred redemption model, which should help the firm secure approval.

In addition to the changes, BlackRock’s new proposal includes a revised disclosure section, highlighting that the trust will take custody of its bitcoin with Coinbase and track spot prices on various global markets through the CME CF Bitcoin Reference Rate. The ETF will also seek to mitigate risks using physical and digital safeguards, including “enforcement, monitoring, and reporting capabilities.”

BlackRock’s new filing also reveals that the trust will purchase bitcoin through an exchange rather than buying it on its own, which could help it avoid a possible ban from major U.S. exchanges such as Kraken and Poloniex, which have shut down numerous times due to hacking and other security breaches.

Lastly, the new filing notes that the trust will hold a significant amount of its bitcoin in its account, allowing it to keep the price of its ETF shares steady compared with spot prices. That should help ensure that the ETF will remain profitable, even in a downturn.

A spate of filings for spot bitcoin and ether ETFs, including from traditional finance heavyweights like BlackRock, VanEck, and WisdomTree, have revived the crypto market this year after a series of meltdowns that led to bankruptcies for many small investors in 2022. The ETF proposals have also encouraged investors who were skeptical of cryptocurrencies to enter the space, bolstering their reputation as a viable investment option.

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