Blackrock Meeting with SEC
Blackrock recently held a meeting with the U.S. Securities and Exchange Commission (SEC) to discuss the structure of its upcoming Bitcoin ETF. The memo from the regulator revealed that the meeting included 8 members from the SEC’s Division of Trading and Markets, 7 representatives from BlackRock, and 4 representatives from the NASDAQ Stock Market.
“The discussion concerned The NASDAQ Stock Market LLC’s proposed rule change to list and trade shares of the iShares Bitcoin Trust,” read the notice.
Although there was no explicit transcript or summary of the meeting provided, BlackRock did share a short slide presentation on potential “redemption models” for the iShares Bitcoin Trust (IBTC). These models aim to ensure that the value of the ETF’s shares aligns with the net asset value of its underlying bitcoin during price dislocation periods.
The presentation outlined two methods: the “in-kind” and “in-cash” redemption models. Under the in-kind model, a market maker purchases ETF shares from the listing exchange and transfers them back to the ETF issuer. The issuer’s Bitcoin custodian then releases BTC back to another market maker, who can sell it on the open market. The in-cash model follows a similar process but requires the ETF issuer to sell their BTC to a market maker before redeeming the shares for cash.
Implications of Redemption Models
The SEC has engaged in discussions with other aspiring ETF sponsors, including Grayscale, this week. Grayscale recently entered into an agreement with the Bank of New York Mellon to act as a transfer agency for the trust’s shares.
ETF analyst Eric Balchunas suggests that cash redemptions may be easier for ETF issuers to handle, as it avoids direct interaction with Bitcoin. In contrast, in-kind redemptions offer greater tax efficiency. Balchunas notes that most applicants prefer the in-kind model, but there is a risk of delayed approvals from the SEC if the regulator continues to favor a cash redemption model.
“Only 2-3 filers had planned cash creates, the rest wanted to do in-kind,” says Balchunas.
The SEC’s final deadline to approve or deny the first spot Bitcoin ETF from Ark/21Shares is January 10. Balchunas remains optimistic, giving the ETF a 90% chance of receiving approval.
