There is one final hurdle for potential issuers ahead of the January deadline for the Securities and Exchange Commission to approve, reject or delay a decision on spot Bitcoin ETFs. This is an approved participant.
Bloomberg Intelligence analyst Eric Balchunas predicted that each Bitcoin ETF would need to have explicitly approved participant parameters in its S-1 before being considered for approval.
“This is not an easy final step and may stop some out of the starting gate,” Balchunas said Friday. on twitter. He then developed the hypothesis that “AP agreement + cash generation = approval.”
https://twitter.com/EricBalchunas/status/1738287502111244593
The approved participant wrinkle appears to be another attempt by the SEC to make it very clear who can and cannot participate in the creation and redemption of Bitcoin ETF shares, and, by extension, who can handle BTC directly. .
By definition, an authorized participant is an organization that can create and redeem shares in an ETF, other than the issuer itself. Typically, it is large banks and financial institutions that take on these roles.
Generally, the more authorized participants an ETF has, the higher its liquidity. When there is a shortage of shares in the market, authorized participants can create more shares. And if there are too many ETF shares on the market, that could reduce the number of shares available to authorized participants. In both cases, additional participants help keep the ETF’s stock price in line with the underlying asset, in this case Bitcoin.
A spot Bitcoin ETF is a product the industry has been wanting to approve for U.S. investors for over a decade. But the SEC has been adamant that there is too much risk to allow investors access to it. Chief among these risks are market manipulation and reliable price discovery.
In the screenshot, Balchunas showed a table tracking the status of Bitcoin ETF hopefuls. Half of them still allow shares to be issued in cash or in kind. But as the Bloomberg analyst himself said, spot stock creation is not the SEC’s starting point.
“The SEC will allow registered brokers to use Bitcoin, but they will not be happy with spot trading because that is not allowed,” he said in a webinar earlier this week. “I don’t think they want their unregistered subsidiaries to have access to Bitcoin. Cash generation solves this problem. This basically means that the issuer has access to the Bitcoin and no one else has access to it.”
The past two months have seen a flurry of meetings and phone calls between regulators and potential issuers such as Grayscale, Valkyrie and BlackRock. Many speculators say it is unlikely that the SEC will put this much effort into fine-tuning applicants’ S-1 filings at this point. Unless it was for the purpose of ultimately approving some of the S-1 documents.
There are currently more than a dozen Bitcoin ETF hopefuls considering applications with U.S. regulators. Companies have been trying to gain approval since 2013, but expectations were heightened when Wall Street giant BlackRock made a run in June with its iShares Bitcoin Trust.
BlackRock’s S-1 filing has received three amendments since it was filed, the most recent explicitly stating that the ETF would only allow stock issuance in cash and switching the fund’s ticker from IBTC to IBIT. If approved, the ETF will trade on Nasdaq.
Edited by Guillermo Jimenez.