A modification to the structure of BlackRock’s suggested spot bitcoin (BTC) exchange-traded fund (ETF) allows Wall Street banks—which are subject to regulations regarding cryptocurrency ownership—to take center stage.Authorized participants, who are an essential component of the ETF ecosystem, can now create new fund shares using cash instead of just cryptocurrencies according to a recent change made by BlackRock.
Because heavily regulated U.S. banks aren’t allowed to store bitcoin directly, this arrangement would allow companies like JPMorgan or Goldman Sachs, who have some of the world’s largest balance sheets, to serve as APs for BlackRock’s ETF.(It is up for debate if they wish to.)A note filed in connection with 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 a middleman 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 move could allow banks to expand their share of the market and give more liquidity providers.
“If the SEC accepts this revised, dual model of create and redeem with cash and physical, that means the liquidity that supports the ETF shares when they trade would be increased, because obviously, you have more potential APs as part of the process,” CF Benchmarks CEO Sui Chung said in an interview. (CF Benchmarks is the Kraken-owned benchmarks administrator for several existing spot bitcoin ETF applications, including BlackRock’s.) “And although trading firms like Jane Street, etc. are large and are experts, they fundamentally don’t have the trillion-dollar plus balance sheets that large American banks have.”