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Edited by Niti998 at 21-12-2023 11:26 AM
BlackRock plans to make it easier for Wall Street banks to participate in its Bitcoin ETF— if approved— by shifting the risk to cryptocurrency market makers.
According to a memo shared by the SEC regarding a meeting at the end of the month involving BlackRock, Nasdaq, and the Committee, the plan includes a novel way of redeeming ETF shares. The two parties held a meeting last month to discuss feedback on the Bitcoin ETF application from the asset management company.
The Bitcoin ETF would allow investors in the fund to gain exposure to Bitcoin without directly purchasing or storing the asset—something that has avoided the U.S. market for over a decade. Most analysts expect such a product to bring a significant influx of capital into the cryptocurrency market. However, given concerns about market manipulation in the Bitcoin market, the U.S. Securities and Exchange Commission (SEC) has been hesitant to approve such a proposal.
The SEC has not yet made a decision on BlackRock's iShares Bitcoin Trust (IBTC) application, technically due by December 15th. However, analysts suggest that regulators may make decisions on a few existing Bitcoin ETF spot applications earlier this month (Monday, August 10th to Wednesday, August 12th).
The BlackRock-Nasdaq-SEC meeting is a follow-up to the July 20th meeting, where the securities regulator expressed some concerns about BlackRock's stock redemption model.
The previous proposal outlined T+1 settlement, where the broker-dealer delivers IBTC shares to the transfer agent, and the issuer requests the custodian (in this case, Coinbase Custody) to send the Bitcoin backing these shares to the cryptocurrency market maker. The market maker closes out Bitcoin short positions.
For context: T stands for the order date. So, T redemption means the order settles on the same day it's placed. T+1 redemption, the order placed on Monday settles on Tuesday. As is often the case in traditional finance, the only eligible days are market open days. This means weekends are not counted, and an order placed on Friday settles the following week.
The T+1 process is very timely, as the SEC recently approved new rules requiring all stocks and ETFs to settle within one business day. This change will take effect in late October 2024.
BlackRock's new settlement process means that redemption orders will settle by sending cash from the cryptocurrency market maker to the broker-dealer and then authorizing participants (large Wall Street banks) to join. The revised model addresses a significant gap.
BlackRock did not specify the exact method but indicated that the new process provides ""superior resistance to market manipulation""—reflecting the SEC's primary concern about the product. The asset management company also stated that this process would create ""simplicity and coordination across the entire ecosystem.""
Many large financial institutions must use third-party firms to custody digital assets on behalf of themselves or their clients. This means that initiating the redemption process with BTC requires going through an external custodian first. Making redemption faster and less risky for large institutions, managing assets worth tens of billions of dollars for clients, may mean more institutional funds flowing into the Bitcoin ETF. |
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Post time 20-12-2023 09:50:43