BlackRock claims its updated ETF model provides enhanced safeguards against market manipulation, a factor that has historically led the SEC to reject previous spot Bitcoin ETF proposals.

BlackRock Refines Spot Bitcoin ETF to Facilitate Increased Participation by Banks

In a strategic move, BlackRock has adjusted its application for a spot Bitcoin exchange-traded fund (ETF) to enhance accessibility for major Wall Street banks. The revised model introduces a novel approach, allowing these banks, such as JPMorgan or Goldman Sachs, to generate new shares in the fund using cash instead of solely relying on cryptocurrencies.

The innovative in-kind redemption "prepay" model serves as a breakthrough, enabling banking giants to act as authorized participants (APs) for the ETF. This circumvents existing restrictions that bar them from directly holding Bitcoin or other cryptocurrencies on their balance sheets.

Presented during a meeting with the United States Securities Exchange Commission on November 28, the new model, jointly proposed by six BlackRock members and three from NASDAQ, aims to address concerns related to market manipulation—a factor the SEC has traditionally cited in rejecting spot Bitcoin ETFs.

If granted approval, this development holds the potential to reshape the landscape for Wall Street banks with substantial balance sheets, providing them with a viable avenue to engage in the Bitcoin market. Many heavily regulated banks currently face limitations in directly holding Bitcoin.

Under the refined model, authorized participants would transfer cash to a broker-dealer. Subsequently, the cash would be converted into Bitcoin before being securely stored by the ETF's custody provider—in BlackRock's case, Coinbase Custody.

Additionally, this revamped structure effectively reallocates risk, shifting it away from authorized participants and placing a greater share of it in the hands of market makers. This strategic adjustment could mark a significant evolution in the integration of traditional financial institutions into the burgeoning cryptocurrency market.

BlackRock Highlights Enhanced Resistance to Market Manipulation in Revised ETF Model

In a bid to address longstanding concerns, BlackRock has emphasized that its updated ETF model boasts "superior resistance to market manipulation." This assertion directly tackles a key obstacle that has led the U.S. Securities and Exchange Commission (SEC) to consistently reject previous spot Bitcoin ETF applications.

Furthermore, BlackRock contends that the new structure of the ETF will not only fortify investor protections but also contribute to a reduction in transaction costs. The company envisions increased "simplicity and harmonization" across the broader Bitcoin ETF ecosystem as a result of these modifications.

BlackRock's engagement with the SEC has been ongoing, with the most recent meeting occurring on December 11, marking the third interaction between the asset management giant and the SEC under the leadership of Gary Gensler. The preceding meeting on November 28 served as a follow-up to the initial discussion held on November 20, during which BlackRock and NASDAQ presented their original in-kind redemption model.

The SEC faces a deadline to make a decision on BlackRock's ETF application by January 15, with the ultimate deadline set for March 15.

Meanwhile, industry analysts specializing in ETFs anticipate that the SEC will render decisions on multiple pending spot Bitcoin ETF applications between January 5-10. Various financial firms, including Grayscale, Bitwise, VanEck, WisdomTree, Invesco Galaxy, Fidelity, and Hashdex, are eagerly awaiting the SEC's determinations during this crucial period.