December 15, 2023
By Anjali Kochhar
Proposed adjustments to the structure of spot bitcoin ETFs would allow authorized participants (APs) to generate new fund shares using cash, expanding access to banks that are unable to directly hold cryptocurrencies.
Wall Street banks, who are subject to regulations regarding their cryptocurrency holdings, now have the opportunity to play a significant role in BlackRock’s proposed spot bitcoin (BTC) exchange-traded fund (ETF).
Authorized participants are an essential component of the ETF ecosystem, and BlackRock has just made it possible for them to create new fund shares using cash instead of just cryptocurrencies.
The arrangement would allow companies like JPMorgan or Goldman Sachs, which have some of the biggest balance sheets in the world, to serve as APs for BlackRock’s ETF, as highly regulated U.S. banks are not allowed to own bitcoin themselves. (It is debatable if it wishes to).
A note filed related to a meeting between the U.S. Securities and Exchange Commission, BlackRock, and Nasdaq on November 28 states that the cash that asset managers (APs) utilize in this procedure can subsequently be converted into bitcoin by the intermediary and held by the ETF’s custody provider.
The likelihood that the SEC will soon allow spot bitcoin exchange-traded funds (ETFs) has increased. If this approval attracts a large influx of capital from individual investors, it might revolutionize the digital assets market. Before today, the general consensus was that APs would be big, experienced market-making companies with a focus on cryptocurrency, like Virtu, Jump Trading, and Jane Street, rather than banks. However, the adjustment implies that banks could get a portion of the profits and increase the number of liquidity providers.
There would be more liquidity to sustain ETF shares during trading if the SEC approves this updated dual model of creating and redeeming with cash and physical. This is because there are more possible APs involved in the process, as CF Benchmarks CEO Sui Chung stated in an interview.
(CF Benchmarks, Kraken’s-owned benchmarks administrator, oversees BlackRock’s and other existing spot bitcoin ETF applications.) “Despite being sizable and knowledgeable, trading firms such as Jane Street lack the trillion-dollar-plus balance sheets characteristic of major American banks.”
About the author
Anjali Kochhar covers cryptocurrency stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.