The world’s largest asset manager, BlackRock Inc (NYSE: BLK), is in the advanced stages of introducing a Bitcoin exchange-traded fund (ETF). They plan to use a Prime Execution Agent to manage the Bitcoin transactions on their behalf. This agent will ensure that for every share of the ETF, there’s a corresponding amount of Bitcoin, maintaining a 1-to-1 ratio.
While BlackRock has kept the agent’s identity confidential, they have publicized their choice of Coinbase as the custodian. Coinbase, being the largest crypto exchange in the U.S., might draw regulatory attention, especially since the Securities and Exchange Commission (SEC) has been actively scrutinizing crypto platforms, including a legal case against Coinbase for alleged violations of securities law.
There are concerns about how this plan will fare with the SEC. ETF analyst James Seyffart pointed out the potential issues with having an external entity handle the Bitcoin procurement for the ETF. This might necessitate revisions in other ETF issuers’ filings to align with SEC preferences. In light of this, BlackRock and other major players are revising their strategies to meet these regulatory expectations.
Industry Response and Regulatory Outlook
ETF expert Eric Balchunas expressed strong optimism about the SEC’s approval of the Bitcoin ETF, estimating a 90% likelihood by January 10. However, he also noted that this estimate hinges on the ongoing talks and available data about the ETF. He highlighted the SEC’s favor towards the “cash create” model for ETFs, which involves trading ETF shares for cash instead of the underlying assets. This preference is influencing major issuers like BlackRock and ARK 21Shares, who are shifting their redemption procedures from asset transfers to cash transactions.
The industry’s proactive approach is indicative of a growing confidence that the SEC might permit spot Bitcoin ETFs in early 2024. This sentiment is fueled by private discussions, public statements, and industry analyses. Firms like Hashdex and Bitwise are ramping up advertising efforts, while VanEck plans to increase its Bitcoin holdings, all in anticipation of a positive regulatory outcome.
As January approaches, the crypto industry is poised at a critical juncture. The actions of industry leaders like BlackRock signal a new phase for crypto ETFs. However, the approval process’s outcome remains uncertain, with only speculation to gauge the potential challenges and successes in the Bitcoin ETF arena. The coming weeks will be crucial in determining if these efforts align with the SEC’s regulatory framework and if they will lead to a wave of approvals for crypto ETFs.