To make itself more accessible to large Wall Street banks, BlackRock made a strategic adjustment to its application for a Spot Bitcoin exchange-traded fund (ETF). They modified the Spot Bitcoin ETF to encourage bank involvement. With the new paradigm, significant banks—JPMorgan and Goldman Sachs, for example—can now create new fund shares with cash rather than only depending on cryptocurrency.

The novel in-kind redemption “prepay” concept is a game changer, allowing prominent banking figures to function as ETF-Authorized Participants (APs). By doing this, they get around current limitations that prevent them from having actual Bitcoin or other cryptocurrency holdings on their balance sheets.

The new model was jointly proposed by six BlackRock members and three NASDAQ members during a meeting with the US Securities Exchange Commission on November 28. Its goal is to address concerns about market manipulation, which the SEC has historically cited as a reason for rejecting Bitcoin ETFs.

What is the Implication of This Development?

BlackRock Modifies the Spot Bitcoin ETF to Encourage Solid Banks' Involvement

If approved, this development might change the game for Wall Street banks with large balance sheets by allowing them to participate in the Bitcoin market. Currently, there are restrictions on how many highly regulated banks can hold Bitcoin directly.

Under this refined model, authorized participants would send money to a broker-dealer. The funds would then be exchanged for Bitcoin and kept safe by the ETF’s custody provider – in BlackRock’s case, Coinbase Custody.

Furthermore, by effectively reallocating risk, this revised structure gives market makers a more significant portion of the risk and takes it away from approved participants. This tactical change may advance how conventional financial institutions are included in the rapidly expanding cryptocurrency space.

BlackRock’s Revised ETF Model Features Enhanced Resistance to Market Manipulation

BlackRock Modifies the Spot Bitcoin ETF to Encourage Solid Banks' Involvement

To allay long-standing worries, BlackRock has highlighted that its revised ETF model offers “superior resistance to market manipulation.” This claim addresses a significant barrier that has repeatedly caused the Securities and Exchange Commission (SEC) of the United States to deny prior applications for Bitcoin ETFs.

Moreover, BlackRock asserts that the revised ETF structure will strengthen investor safeguards while lowering transaction costs. According to the business, these changes will lead to greater “simplicity and harmonization” throughout the larger Bitcoin ETF ecosystem.

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Under Gary Gensler’s direction, BlackRock and the SEC have been interacting with each other for some time. The most recent meeting occurred on December 11 and was the third encounter.

The November 28th meeting followed the November 20th conversation whereby NASDAQ and BlackRock introduced their initial in-kind redemption plan. BlackRock’s ETF application has a deadline of January 15 for the SEC to decide, with a final deadline of March 15.

In conclusion, if this modification is approved, it will be a big win for the cryptocurrency space as we will have an increased institutional adoption rate. In addition, it will enable traditional finance to blend smoothly with decentralized finance. At this critical juncture, many financial institutions, including Grayscale, Bitwise, VanEck, WisdomTree, Invesco Galaxy, Fidelity, and Hashdex, anxiously anticipate the SEC’s decisions.

ETF-focused industry analysts predict that the SEC will make decisions on several outstanding spot Bitcoin ETF applications between January 5 and January 10.