Key Takeaways
- The model seeks to empower financial giants like JPMorgan and Goldman Sachs as authorized participants
- The structure includes authorized participants (APs) transferring cash to a broker-dealer.
In a strategic move aimed at easing Wall Street’s access to the crypto market, BlackRock has revamped its application for a spot Bitcoin exchange-traded fund (ETF).
The innovative “in-kind redemption prepay” model seeks to empower financial giants like JPMorgan and Goldman Sachs as authorized participants, enabling them to bypass existing constraints preventing direct crypto holdings on their balance sheets.
During a November 28 meeting with the United States Securities Exchange Commission (SEC), six members of BlackRock and three from NASDAQ presented this groundbreaking redemption model. If approved, this approach could reshape the landscape for large banks with trillion-dollar balance sheets eager to dip their toes into the world of cryptocurrencies.
The novel structure involves authorized participants (APs) transferring cash to a broker-dealer. This cash is then converted into Bitcoin before finding a secure home with the ETF’s custody provider—in this case, Coinbase Custody for BlackRock. This shift holds promise for Wall Street banks, which currently face limitations in holding Bitcoin directly.
Contrary to expectations, this revised approach opens the door for banks to play a more active role, expanding the pool of liquidity providers. The move is a departure from the common notion that APs would primarily be large market-making firms with crypto expertise, such as Jane Street, Jump Trading, and Virtu.
BlackRock, a financial juggernaut, made waves in November 2023 by filing for a spot Ethereum (ETH) exchange-traded fund. A recent meeting on December 11 with the SEC, the third led by Gary Gensler, underscores ongoing efforts to navigate the regulatory landscape and advance crypto-related initiatives.
A key aspect highlighted by BlackRock in its proposal is the model’s enhanced resistance to market manipulation, a significant factor in the SEC’s prior rejections of spot Bitcoin ETF applications.
The financial institution claims that the revamped ETF structure not only strengthens investor protections but also reduces transaction costs, fostering simplicity and harmonization within the broader Bitcoin ETF ecosystem.
The SEC now faces a January 2024 deadline to either approve or reject the recent applications for spot Bitcoin ETF products. ARK Invest and Grayscale are some among the major applicants for an approved spot Bitcoin ETF in the U.S.
