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BlackRock Settles on Cash Redemptions in Latest ETF Filing but Crypto Payouts Remain on the Cards

Last Updated December 19, 2023 9:54 AM
James Morales
Last Updated December 19, 2023 9:54 AM

Key Takeaways

  • BlackRock and the SEC have held meetings in recent weeks to discuss how the firm’s proposed Bitcoin ETF intends to issue redemptions.
  • The fund manager had pushed for an “in-like” model that would see shares redeemed for Bitcoin but has ultimately come around to the SEC’s demand for cash redemptions.
  • However, Blackrock’s amended filing suggests it hasn’t fully given up on the idea of in-like redemptions.

With the Securities and Exchange Commission seemingly primed to approve the first spot Bitcoin Exchange-Traded Funds (ETF) soon, Blackrock has held a series of meetings with the regulator to discuss how ETF shares will be redeemed. (Or rather, because ETF shares aren’t redeemed individually, how “baskets” of shares will be redeemed.)

Having initially pushed for ETF baskets to be redeemable “in-like,” Blackrock’s latest SEC filing has bowed to the agency’s preference for cash redemptions. However, it hasn’t completely abandoned the prospect of paying investors in BTC.

Cash vs. Crypto Redemptions

BlackRock has argued that redeeming ETF shares for Bitcoin is more efficient than issuing redemptions in dollars.

While most firms initially proposed crypto redemptions, according  to Bloomberg ETF analyst Erich Balchanus, the SEC asked them to amend their applications to incorporate a cash redemptions model in line with traditional ETFs.

Spearheading efforts to lobby for Bitcoin payouts, BlackRock met with the SEC several times to discuss the issue of cash versus in-like redemptions. However, the regulator resisted on the grounds that the Bitcoin redemption process could negatively affect US-registered broker/dealers’ balance sheets.

BlackRock Bitcoin ETF redemptions
BlackRock’s revised model for Bitcoin redemptions. Source: SEC.

In a bid to address the SEC’s concerns, the fund manager proposed introducing an extra step in the redemption process. This could ensure the broker’s liabilities wouldn’t outweigh its assets at any stage. However, the proposed change failed to appease the regulator. 

BlackRock Backs Down, for Now 

Despite Blackrock’s push for in-like redemptions, the firm committed to an orthodox cash redemptions model in its latest SEC filing .

It said: “The Trust issues and redeems baskets on a continuous basis. These transactions will take place in exchange for cash.”

BlackRock has kept open the possibility of changing the process to make baskets redeemable in crypto at a later date. The document adds that “subject to the In-Kind Regulatory Approval, these transactions may also take place in exchange for Bitcoin”. This suggests the SEC may not have entirely ruled it out. 

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