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Cash vs Crypto: Is ETF Redemptions Issue the Final Obstacle to SEC Approval? 

Last Updated November 23, 2023 4:24 PM
James Morales
Last Updated November 23, 2023 4:24 PM

Key Takeaways

  • Traditional ETFs pay investors redemptions in fiat currency.
  • But Blackrock and others want to redeem Bitcoin ETFs in like.
  • Representatives of the asset manager met with the SEC to make the case for crypto redemptions.

The U.S. Securities and Exchange Commission (SEC) will need to deliver a verdict on at least one application to list a spot Bitcoin Exchange Traded Fund (ETF) by March 15. 

However, with deadlines looming, the question of how ETF managers will pay out redemptions remains one of the last sticking points. 

BlackRock Meets SEC To Argue For Crypto Redemptions

When investors want to redeem ETF shares, the value of each share is calculated after the investor places a redemption order, based on the fund’s net asset value at the close of the trading. 

In the US, this means investors buy and sell ETF shares in dollars. However, according to an SEC  memorandum, representatives of BlackRock and Nasdaq met with the SEC on Monday, November 20, to argue the case for in-like redemptions.

Blackrock Bitcoin etf redemptions
  BlackRock wants to redeem ETF shares in BTC.

Rather than offering standard cash redemptions, BlackRock wants to pay out redemptions in Bitcoin. Compared to dollar payments, issuing Bitcoin directly would be much more streamlined. 

A BlackRock presentation noted that after an investor requests to sell ETF shares back to the fund manager, there are 8 additional steps before they can receive their funds. On the other hand, crypto redemptions would reduce this to just 4 steps.

Only 1 or 2 ETF Hopefuls Plan For Cash Redemptions

According to ETF analyst Eric Balchunas, only 2 or 3 of the 12 asset managers that have made Bitcoin ETF applications plan to deploy cash payouts. The rest are apparently set on in-like redemptions.

For fund managers, redeeming ETF shares in BTC would be preferable because they wouldn’t incur capital gains tax from asset sales.

Nevertheless, considering the SEC’s historic resistance to spot crypto ETFs, BlackRock’s latest appeal to the agency could be pushing its luck. 

Last week, Balchunas reported that the SEC asked ETF applicants to drop plans for Bitcoin ETF redemptions from their respective filings. Unless they can’t convince the regulator to change its stance soon, they will need to amend their applications or risk rejection.

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