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BlackRock Bows to SEC, Adjusts Bitcoin ETF Application for Cash-Only Redemptions

Asset management giant BlackRock is making significant adjustments to its spot Bitcoin exchange-traded fund (ETF) application, signaling compliance with the Securities and Exchange Commission’s (SEC) preference for ‘cash creations’ in fund redemptions. This move comes as BlackRock joins other major ETF issuers in conforming to the regulatory framework laid out by US financial authorities.

Bloomberg senior ETF analyst Eric Balchunas commented on BlackRock’s filing, stating, “BlackRock has gone cash only,” and noted that the decision marks the end of the debate over in-kind redemptions. In-kind redemptions involve exchanging the fund’s underlying assets, such as Bitcoin, for shares. However, the SEC has favored cash redemptions, where the fund issuer accepts cash to buy the underlying asset and sells the Bitcoin to distribute cash back to redeeming shareholders.

BlackRock was initially pushing for a hybrid in-kind ETF redemption mechanism, but the SEC insisted on cash-only redemptions. Balchunas sees BlackRock’s compliance as a positive sign, indicating that the firm is aligning itself with regulatory expectations before the holidays.

The adjustment means that BlackRock’s Bitcoin ETF will accept cash and Bitcoin to create new shares and vice versa. Notably, participants will not be able to supply Bitcoin in exchange for ETF shares, aligning with the SEC’s preference for cash-redemption methods.

While some ETF issuers, such as WisdomTree, have left open the possibility for in-kind creation and redemption, BlackRock’s move, along with similar adjustments by other issuers like Ark Invest and 21Shares, reflects a collective adherence to the SEC’s stance. Balchunas emphasized that the SEC’s position appears immovable, and the recent amendments by issuers indicate a concession to the regulatory authority’s preference for cash creations.

Despite the regulatory adjustments, analysts suggest that this development is likely positive for a potential approval of Bitcoin ETFs in January, as issuers align their applications with SEC expectations in the eleventh hour before the holiday season.

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