BlackRock Meets With SEC, Defies Cash Creations And Pushes For In-Kind Spot Bitcoin ETF

Representatives of the New York-based asset management giant BlackRock and Nasdaq met with some of the officials of the U.S. Securities and Exchange Commission (SEC) this week to discuss spot Bitcoin ETF.

In a presentation shown at the meeting, BlackRock, like ARK Invest, leaned toward a Bitcoin exchange-traded fund (ETF) that uses in-kind creations and redemptions, which goes against the reported recommendations of the commission to BTC ETF applicants.

According to an SEC memo, BlackRock detailed in the presentation how it could use an in-kind or in-cash redemption model for its iShares Bitcoin Trust.

"The discussions concerned The NASDAQ Stock Market LLC's proposed rule change to list and trade shares of the iShares Bitcoin Trust under NASDAQ Rule 5711(d)," the memo read.

Bloomberg Intelligence ETF analyst James Seyffart said in a post on X that the BlackRock presentation indicated a preference for the in-kind redemption model.

"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)," the ETF analyst wrote.

Last week, the SEC instructed spot Bitcoin ETF applicants to amend their filings and use cash instead of in-kind creations. The recommendation from the SEC was viewed by some as a move to appease brokers and could potentially turn the Bitcoin ETF landscape.

Bloomberg Intelligence ETF analyst Eric Balchunas had shared that the major Wall Street regulator, particularly its Division of Trading and Markets, reportedly talked to exchanges on their Bitcoin ETF applications and recommended they submit amendments detailing cash creations rather than in-kind creations.

"Hearing chatter SEC's Trading and Markets engaged w/ exchanges this week on spot bitcoin ETF 19b-4s, is advising them they'd like the ETFs to do cash creates (vs. in-kind), and has asked them to get in amendments in next couple wks. This isn't unexpected but a good sign nonetheless," Balchunas said.

"Cash creates makes sense IMO bc broker-dealers can't deal in bitcoin so doing cash creates puts onus on issuers to transact in Bitcoin and keeps broker dealers from having to use unregistered subsidiaries or third-party firms to deal w (with) the btc. Less limitations for them overall," the analyst added.

But this week, ARK and 21 Shares submitted an updated spot Bitcoin ETF prospectus which seemingly disregarded the SEC's guidance and stuck with its previous position of using in-kind creation and redemptions.

The SEC preferred Bitcoin ETFs to execute cash creations – a shift, which is not entirely surprising, as it highlights the commission's approach to handling the complexities of cryptocurrency-based exchange-traded funds.