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SEC likely to prioritize ‘cash create’ spot Bitcoin ETFs

A Senior Bloomberg ETF analyst speculated that the Securities and Exchange Commission favors a particular redemption model and that could be a factor for which applications get approved.

The U.S. Securities and Exchange Commission (SEC) may choose to first approve spot Bitcoin ETFs with a cash create redemption structure, according to ETF expert Eric Balchunas who said that such a decision remained unconfirmed by America’s securities regulator.

Cash create differs from the alternative “in-kind” option since it requires issuers to hold the dollar equivalent of every Bitcoin (BTC) offered in the ETF. Conversely, the in-kind model only mandates that the operator hold BTC with a trusted custodian. 

Experts have said that the latter option would be more beneficial for investors as it mitigates issuers’ operating costs and boasts better tax consequences. Balchunas noted that several issuers were positioned to offer their ETFs under the cash create model.

However, Wall Street juggernaut BlackRock was supposedly pushing for in-kind redemptions. 

Spot BTC ETFs remain undecided as the SEC reviews filings from 13 applicants, including Grayscale’s bid to convert its Bitcoin Trust (GBTC) into an ETF. The company also hired John Hoffman, a top ETF veteran from fellow asset manager Invesco, to lead its distribution and partnership strategy.

Experts predict that January 2024 is the most probable time for Bitcoin ETF approvals, given conversations between the SEC and filers. This dialogue between regulators and issuers was previously absent, save for denial replies from the SEC. 

SEC Chairman Gary Gensler refused to disclose a timeline for approval but confirmed that applications were in review.

In-Kind redemption model vs In-Cash redemption model for spot BTC ETF | Source: BlackRock iShares filing


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