- In the past few weeks, several companies, including BlackRock and ARK, have amended their S-1 applications with the SEC to become among the first approved issuers of spot Bitcoin ETFs.
- According to Balchunas, issuers will likely have to clearly authorize participant parameters in the S-1 form before the commission evaluates it.
- The Authorized Participant requirement seems to emphasize who can and cannot manage the SEC’s spot Bitcoin ETF.
Can the U.S. Securities and Exchange Commission (SEC) pose obstacles for spot Bitcoin ETF applicants? An ETF analyst explained!
Bitcoin ETF Applicants Could Encounter Obstacles
Reports suggest that the U.S. Securities and Exchange Commission (SEC) is gearing up to announce the first wave of issuers of spot Bitcoin exchange-traded funds (ETFs) in early January 2024. While several companies, including BlackRock and ARK, have amended their S-1 applications with the SEC in the past few weeks to become among the first approved issuers of spot Bitcoin ETFs, it seems that applicants will need to overcome another hurdle before approval.
In the past few weeks, several companies, including BlackRock and ARK, have amended their S-1 applications with the SEC to become among the first approved issuers of spot Bitcoin ETFs. BlackRock and ARK, complying with the alleged preference of the SEC, have inclined towards using a cash creation and redemption model for spot Bitcoin ETFs instead of the in-kind model they previously used in S-1 filings.
However, according to Eric Balchunas, a senior ETF analyst at Bloomberg Intelligence, the SEC’s decision does not seem finalized yet. Balchunas suggests that issuers will likely have to clearly authorize participant parameters in the S-1 form before the commission evaluates it. Going further, he speculates that to approve the spot Bitcoin ETF application, the SEC might require issuers to provide an Authorized Participant (AP) agreement.
Balchunas explained, “Latest snapshot of ETF Cointucky Derby with the new column, SEC asked for the name of the AP (who is also an underwriter) in the next S-1 update (coming in the next 10 days). This is not an easy last step and could keep some away from the starting gate. AP agreement + cash create = approval.” The Authorized Participant requirement seems to emphasize who can and cannot manage the SEC’s spot Bitcoin ETF.
But what does an Authorized Participant mean?
An Authorized Participant could be a financial institution, such as a bank, responsible for creating and redeeming ETF shares on the primary market. This role involves adjusting the number of circulating ETF shares and maintaining the price of an ETF in line with the underlying security value, in this case, Bitcoin.
A spot Bitcoin ETF in the U.S. is one of the most anticipated and sought-after crypto investment vehicles in the country. However, the SEC has remained consistent in its stance that the product involves too much risk. Recently, a report emerged suggesting that the in-kind model might be used for money laundering, leading the SEC to prefer the cash creation and redemption model for spot Bitcoin ETFs.
