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Recent reports have revealed that the US Securities and Exchange Commission (SEC) has introduced a “new regulatory standard” for everyone Bitcoin Spot Exchange Traded Fund (ETF) Applicants while awaiting approval from the regulator.
Cash redemption model for Bitcoin ETF applicants
Top Bloomberg analyst James Seyffart reached out to X (formerly Twitter). share the latest update from the regulator. According to him, everyone Bitcoin Spot ETF applicants must bow to this new model.
The SEC’s latest “cash redemption model” emerged amid a period of Bitcoin ETF issuers smoothing out their filings with the U.S. regulator. It appears that the SEC remains undeterred in its demand rather than approving the different model proposed by other issuers.
The model allows authorized participants to deposit funds into the ETF equal to the net asset value of the Creation Units to be created. The fund then uses this money to buy the underlying assets, in this case Bitcoin.
Seyffart's X contribution was accompanied by another post from financial attorney Scott Johnsson, who initially shared the update. The financial lawyer shared a screenshot that revealed more details about the regulator’s new model.
Johnsson claimed so Invesco is the latest company to adopt the cash creation and redemption standard for its ETF. The trust expects that “creation and redemption transactions will initially be in cash.”
However, in the future, the trust may allow/require the execution of creation and redemption transactions under the “in-kind” model. This is the first model proposed by several ETF applicants.
In the in-kind model, the participant deposits a collection of securities that are weighted and composed according to the ETF portfolio. This allows investors to receive creation units from the fund without having to immediately sell the securities for cash.
Eric Balchunas, senior ETF analyst at Bloomberg, has also done so confirmed Invesco's launch of the latest cash model. The analyst claimed that the company is in favor of the initiative, according to its just-updated S-1 filing.
Blackrock's in-kind redemption model
Blackrock recently adjusted The Spot Bitcoin Exchange-Traded Fund (ETF) application introduces an in-kind repayment model called “Prepay.” This is intended to address the limitations that financial firms face when holding cryptocurrencies.
The aim of the adjustment is to make it easier for Wall Street banks to participate in the fund. With this change, Authorized Participants (APs) would be able to issue new fund shares using cash instead of just Bitcoin.
The funds that the APs use for this process can then be converted into Bitcoin through an intermediary and held by the ETF's custody provider. This also enables access for banks that cannot store cryptocurrencies directly.
Until now, Blackrock believes the model will provide greater protection against market manipulation, which has since been the main reason the SEC rejects an ETF.
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