SEC’s Bitcoin ETF Update Deadline Today: Cash-Create Vs In-Kind

Authored by Helen Partz via CoinTelegraph.com,

The SEC wants to minimize the number of intermediaries in spot Bitcoin ETFs to make them a “little more controllable,” Bloomberg ETF analyst Eric Balchunas said.

As the cryptocurrency community awaits the potential approval of a spot Bitcoin exchange-traded fund (ETF) in the United States in January, today marks a significant deadline.

The U.S. Securities and Exchange Commission (SEC) said last week that spot Bitcoin ETF applicants must file final S-1 amendments by Dec. 29.

The regulator also required them to sign an agreement with an authorized participant (AP) and sort out the cash-create redemption model it favors.

The deadline means that today, the community will likely find out which spot Bitcoin ETF filers out of 14 applicants could be in the first wave of potential spot BTC ETF approvals, which is largely expected in early January.

According to Bloomberg’s senior ETF analyst Eric Balchunas, many ETF applicants have updated their filings with the cash-create redemption model.

As of Dec. 22, seven applicants had their filings fixed to cash-create, while the other seven included both cash-create and in-kind models in their registration statements.

Spot Bitcoin ETF filings’ statuses as of Dec. 22, 2023. Source: X (formerly Twitter)

Most existing ETFs involve in-kind creation, meaning that when the intermediaries want to make new ETF shares, they give firms like BlackRock funds using actual assets like Bitcoin.

“And that’s how 90% of ETFs work is in-kind. Only 10% are cash,” Balchunas said in an interview with Cointelegraph on Dec. 28.

The reason the SEC wants the cash model for spot Bitcoin ETFs is that they want to minimize the number of intermediaries that have access to the actual Bitcoin in the redemption and offering process, the ETF analyst believes.

“They don’t like the idea of broker-dealers who are the intermediaries touching Bitcoin,” Balchunas noted.

“Many were going to create unregistered subsidiaries to act in place of the actual broker-dealers, but the SEC just didn’t want it,” the ETF analyst said.

The SEC wanted to “close the loop a little more,” Balchunas said, mentioning that he had also heard of regulators being worried about money laundering. He stated:

“If the only people messing with the actual Bitcoin are BlackRock and Coinbase, it’s a little more controllable of what Bitcoin you have […] They just want a more closed system with fewer intermediaries touching the actual Bitcoin.”

In addition to the cash-create preference, the ETF applicants must have a determined AP by today.

“The last I heard, there aren’t many agreements signed yet, and I think most of them will get signed,” Balchunas told Cointelegraph, adding that two big companies that are “probably going” to be the APs for everybody are the trading giants Jane Street and Virtu Financial.

In their most recent spot Bitcoin ETF amendment filed on Dec. 28, ARK and 21Shares did not specify the name of an AP.

“AP mentioned a ton but not named. Assuming that will probably come in the very final effective update just prior to launch. But we still don’t know if they have signed an agreement,” Balchunas wrote on X.