BlackRock and SEC discuss redemption mechanics for a Bitcoin ETF

The U.S. Securities and Exchange Commission (SEC) and BlackRock held a meeting, in which they discussed the details of a spot exchange-traded fund based on the leading cryptocurrency.

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According to the memorandum, the asset manager presented a slide deck describing two possible redemption mechanisms for its iShares Bitcoin Trust — in-kind delivery of the underlying asset and cash settlement.

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The first method involves delivering Bitcoin to a market maker, who would then sell them for fiat. The second involves delivering the digital assets from ETF to the investor in exchange for the investor’s securities.

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Bloomberg market analyst James Seyffart noted that BlackRock prefers the in-kind redemption option, as ‘this is probably the most transparent structure for them and for clients’.

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Looks like @BlackRock also met with SEC! There’s a couple slides in relation to in-kind vs cash creation. Based on this it looks like BlackRock prefers in-kind for their #bitcoin ETF (makes sense as its probably cleanest structure for them & end investors)
h/t @btcNLNico https://t.co/AK0XspL4zJ pic.twitter.com/eeuUT9T5mn

— James Seyffart (@JSeyff) November 22, 2023

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Earlier, analyst Eric Balchunas noted that most Bitcoin fund issuers prefer payments in the underlying asset, but the SEC advocates for fiat. He called the debates on this topic the latest ‘subplot in an endless drama’.

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On June 15, BlackRock sent to the Commission an application for a Bitcoin-based investment product. Following the financial giant, similar requests came from Valkyrie, Fidelity Investments, WisdomTree and Invesco.

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On August 31, the SEC delayed decisions on several Bitcoin ETFs at least until mid-October. By the end of September, the regulator postponed consideration of the applications to January 2024.

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Earlier, the U.S. regulator met with Grayscale’s leadership to discuss converting their Bitcoin Trust into an ETF.