Grayscale Investments, a cryptocurrency asset management firm, is reportedly in discussions with major financial institutions, including JPMorgan and Goldman Sachs, regarding its involvement in Grayscale’s planned Bitcoin exchange-traded fund.
According to a source familiar with the situation, these firms could, potentially, serve as authorized participants.
Grayscale, JPMorgan and Goldman Sachs did not immediately respond to a request for comment.
Authorized participants are entities capable of creating and redeeming shares of the fund. They play a vital role in the functioning of exchange-traded funds (ETFs), as they are responsible for ensuring that the ETF’s share price accurately reflects the value of the fund’s underlying assets. They also act as a significant source of liquidity for the ETF. In the context of proposed Bitcoin ETFs, BlackRock has already appointed JPMorgan Securities and Jane Street Capital as authorized participants for its Bitcoin ETF.
Goldman Sachs has traditionally maintained a neutral position on cryptocurrencies and the wider digital asset sector. Matthew McDermott, Goldman Sachs’ head of digital assets, in a December 27 interview with Fox Business, expressed that the approval of a Bitcoin ETF would significantly contribute to the maturation of the cryptocurrency market and encourage more institutional investments into digital assets.
While a spot Bitcoin ETF has yet to receive approval in the United States, ETF analysts are highly optimistic, estimating a 90% chance of approval occurring before January 10.
At present, 14 asset managers are aspiring to launch a spot Bitcoin ETF. This would allow institutional investors regulated and direct exposure to Bitcoin within the United States.
As previously reported, asset managers often favor the in-kind model for creating and redeeming shares. This is due to its efficiency and reduced tax complexity. However, the SEC has reservations about this approach. The regulatory agency is concerned that in-kind redemptions could present balance sheet challenges for registered broker-dealers who have to carry out these transactions. The core of the issue lies in the requirement for these entities to physically hold and directly deal with BTC. This introduces potential financial and operational risks.
In a bid to alleviate these concerns, BlackRock presented an alternative in-kind model during a November meeting with the SEC. This revised model was designed to minimize the balance sheet risks associated with handling BTC. Despite BlackRock’s efforts to address the regulatory apprehensions, their proposal did not lead to an immediate resolution or approval from the SEC.