In recent news, Bloomberg analyst Eric Balchunas reported on a significant development in the world of spot Bitcoin ETFs. It appears that securities regulators are instructing these applicants to handle funds in a specific way, favoring cash creates over in-kind creates. This new approach has the potential to impact the filings and timeline of several applicants, as they may need to adjust their content to comply with this directive. In this article, we will delve into the details of this development and its implications for the future of spot Bitcoin ETFs.
Traditionally, spot Bitcoin ETFs have relied on in-kind creations, where participating firms or institutions deliver matching assets, such as Bitcoin, to receive shares of the ETF in return. However, the recent instruction from securities regulators suggests a preference for cash creates, wherein participants deliver cash to receive shares of the ETF. This shift in approach stems from the limitations faced by broker-dealers who cannot directly deal in Bitcoin. By opting for cash creates, issuers become responsible for transacting in Bitcoin, bypassing the use of unregistered subsidiaries and third-party firms.
Balchunas estimates that only a handful of current spot Bitcoin ETF applicants were planning to use cash creates prior to the rumored directive. This means that the remaining firms may need to make significant adjustments to their filings to align with the regulators’ preference or risk delays in their application process. While this development might cause some disruptions, Balchunas remains optimistic about the approval of spot Bitcoin ETFs, maintaining his prediction of a 90% chance of approval by January.
Although Balchunas did not provide a source for the rumor, it is worth noting that the Securities and Exchange Commission (SEC) has been actively seeking input and engaging with ETF applicants since late September. The SEC’s request for input lends credibility to the idea that cash creates may have been one of the suggestions put forward during these interactions. While the SEC has provided limited public details about its engagement, this recent development indicates that the regulatory body is actively considering different approaches and looking for a path forward in the approval process.
The emergence of cash creates as a preferred method for handling funds in spot Bitcoin ETFs marks a significant development in the cryptocurrency investment landscape. While this directive may require some adjustments from applicants, it also presents an opportunity for smoother transactions and less dependency on third-party firms. As the SEC continues its evaluation process and the deadline for ARK Invest’s application approaches, the industry eagerly awaits a potential spot Bitcoin ETF approval by early next year. This development not only paves the way for increased institutional participation but also highlights the adaptability and innovation within the cryptocurrency market.
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