Financial industry major BlackRock has revised the design of its proposed spot Bitcoin exchange-traded fund (ETF), potentially paving the way for Wall Street banks to participate. This adjustment will allow authorized participants (APs) in the ETF ecosystem to create new shares using cash as well as cryptocurrencies, allowing regulated banks such as JPMorgan and Goldman Sachs, which are restricted from directly holding cryptocurrencies, to use BlackRock. You can participate in ETFs as AP.
In its latest move, BlackRock gave APs, a critical component of the ETF framework, flexibility to use cash to create new fund shares. These adjustments are important for highly regulated U.S. banks, which are restricted from holding Bitcoin directly. This setup would allow major financial institutions with significant balance sheets, such as JPMorgan and Goldman Sachs, to potentially become APs for the BlackRock ETF, acting as intermediaries converting cash into Bitcoin.
This development emerged in a memo filed on November 28 related to a meeting involving BlackRock, the U.S. Securities and Exchange Commission (SEC), and Nasdaq. It is yet to be seen whether banks will take advantage of this opportunity, but the possibility of these financial giants participating as APs represents a notable change in the spot Bitcoin ETF landscape.
This arrangement addresses the challenges faced by banks that are unable to hold cryptocurrencies directly and provides a viable path for them to indirectly participate in the cryptocurrency market. The participation of a major bank as an AP could significantly contribute to the liquidity of ETF shares, potentially attracting more retail investors and reshaping the digital asset industry.
Optimism is growing about the SEC’s approval of a spot Bitcoin ETF, and if approved, it could be a transformative moment for the cryptocurrency market and lead to significant investments from retail investors. Previously, AP was expected to be a large market-making company with expertise primarily in the cryptocurrency space. But BlackRock’s amendment opens the door for major banks to become mandatory participants and expands the pool of liquidity providers.
Sui Chung, CEO of CF Benchmarks, a benchmark manager involved in existing spot Bitcoin ETF applications, including BlackRock, highlighted the potential impact of the SEC embracing a modified dual model. According to Chung, this approach could increase liquidity by engaging more potential APs, particularly leveraging the $1 trillion-plus balance sheets of large U.S. banks compared to trading firms focused on cryptocurrencies.