BlackRock’s proposed Bitcoin (BTC) spot ETF is undergoing a key adjustment in its mechanics, opening up possibilities for Wall Street financial institutions to play a significant role. The recent modification allows authorized participants, essential players in the ETF ecosphere, to generate new fund shares using cash, a departure from the previous restriction to crypto-only creation.
This alteration holds particular significance for highly regulated American banks, which, due to current restrictions, cannot directly hold BTC. This adjustment creates an opportunity for institutions such as Goldman Sachs and JPMorgan, boasting some of the world’s largest balance sheets, to step in as APs for BlackRock’s ETF.
In the revised setup, the money deployed by APs may be converted to BTC through a middleman and held by the ETF’s custodian. This information was disclosed in a memo connected to a Nov. 28, 2023, meeting between the SEC, NASDAQ and BlackRock.
A pivotal aspect of BlackRock’s setup is its stance sidestepping market manipulation, a longstanding concern of the SEC regarding Bitcoin ETFs. This model is meticulously crafted to enhance investor protection, diminish transaction costs and streamline operational procedures.
There is a growing sense of optimism regarding the SEC approval of Bitcoin spot ETFs. This approval could be a transformative development for the crypto-asset sector, attracting a surge of investments from retail and institutional investors. The previous consensus was that APs would primarily be large market-making companies with crypto expertise, such as Jump Trading, Virtu and Jane Street, rather than conventional banks. However, this modification expands the potential participant pool, allowing banks to take part and diversify liquidity providers.
Companies such as Bitwise, Fidelity and Grayscale are also awaiting SEC judgments on their plans regarding their submitted Bitcoin ETF applications, and BlackRock’s situation is only one aspect of the bigger picture. These talks center on several redemption methods to strike a balance between investor protection and risk management.
Sui Chung, CEO of CF Benchmarks, emphasized the possible implications, saying that the pool of possible authorized participants will grow if SEC approves this updated dual model and that the liquidity supporting ETF shares might rise dramatically.
The collaboration between NASDAQ and BlackRock in presenting this concept to the regulator underscores the growing partnership between tech platforms and traditional financial entities in developing crypto-related products. If BlackRock’s initiative proves successful, it could pave the way for broader integration and acceptance of Bitcoin within the conventional financial sector.
Moreover, it may inspire other financial institutions to explore similar avenues, contributing to the ongoing legitimization of Bitcoin as a viable asset class. As more investment is attracted via these ETFs, it could have a positive effect on the broader crypto industry, including for entities such as Bit Mining Ltd. (NYSE: BTCM).
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