BlackRock’s Game-Changing Bitcoin ETF Strategy
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Written by
Rahul Nambiampurath - Updated 2024-07-08 12:02:04
BlackRock, the largest global asset management company, has officially submitted a modified application for a Bitcoin Exchange-Traded Fund (ETF) to the United States Securities and Exchange Commission (SEC).
This application emphasizes its capacity for “superior resistance to market manipulation.” Notably, the revised BlackRock BTC ETF proposal is designed to facilitate Wall Street Bank's smoother entry into the company's funds.
According to a Forbes report, the updated model was initially presented to the SEC in November. The objective is to streamline the involvement of banks such as JPMorgan Chase and Goldman Sachs in the Bitcoin market, overcoming stringent regulations preventing them from holding BTC on their balance sheets.
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BlackRock BTC ETF Plan: ‘Prepay’ Model
The report highlights that BlackRock's novel redemption approach termed the “prepay” model, will empower major U.S. banks to function as authorized participants for the iShares Bitcoin Trust. This allows them to circumvent restrictions imposed by authorities that bar them from holding BTC.
Significantly, a group comprising six BlackRock members and three from Nasdaq introduced the revised model during a meeting with the SEC on November 28. Approval of the updated ETF could grant banks with trillions of dollars in assets on their balance sheets access to Bitcoin.
The filing mentions:
“This model appears to address the staff’s concern with in-kind, addressing the critical dimension on which the in-kind model would otherwise not be preferred to the cash model. In so doing, it preserves the many significant benefits to investors of the in-kind model over certain cash models in the context of Bitcoin.”
BlackRock specifies that, under the new framework, Authorized Participants (APs) would transfer cash to a broker-dealer, which would convert it into Bitcoin and securely store it with the ETF's custodian, Coinbase Custody.
Benefits of the Revised Model
As per BlackRock, the innovative ‘prepay' model aims to reduce transaction costs while offering enhanced resistance to market manipulation. Furthermore, the risks associated with execution would be shouldered by digital asset market makers rather than investors, eliminating the necessity for issuers to finance or pre-fund sell trades.
Moreover, the updated model promises “simplicity and harmonization across the ecosystem given significantly lower variance on how in-kind models can be executed vs. cash models”, as stated in the filing.
As of December 12, BlackRock has engaged with the SEC for the third time concerning this modified application. A crucial follow-up meeting on November 28 succeeded the initial model presentation on November 20. These interactions underscore BlackRock's commitment to transparent communication with regulatory authorities.
Bitcoin Spot ETFs Roadmap
Notably, on October 23, the company listed its iShares Spot Bitcoin ETF on the Depository Trust & Clearing Corporation (DTCC) under the ticker IBTC.
This year, various asset management firms, including BlackRock and Fidelity, submitted applications for Spot Bitcoin ETFs to the SEC. The regulator is closely scrutinizing these applications, with pivotal decision dates approaching in January 2024.
While certain models, such as BlackRock's, introduce innovative elements like the ‘prepay' redemption model, the final verdict from the SEC on these applications is eagerly awaited, influencing the landscape of Bitcoin investment alternatives.
