Recent reports have revealed that the United States Securities and Exchange Commission (SEC) has implemented a “new regulatory standard” for everyone bitcoin Spot Exchange Traded Fund (ETF) applicants while awaiting approval from the regulatory body.
Cash Redemption Model for bitcoin ETF Applicants
Bloomberg's top analyst James Seyffart turned to X (formerly Twitter) to share the latest update from the regulatory watchdog. According to him, each bitcoin The Spot ETF applicant will have to kneel before this new model.
The SEC's latest “Cash Redemption Model” came amid bitcoin ETF issuers ironing out their filings with the US regulator. It appears that the SEC is unwavering in its demand, rather than approving the different model that other issuers have suggested.
The model allows authorized participants to deposit funds into the ETF equal to the net asset value of the creation units to be created. The fund subsequently purchases the underlying assets, which in this case is bitcoin, with this money.
Seyffart's X publication was accompanied by another. mail from financial lawyer Scott Johnsson, who initially shared the update. The financial lawyer shared a screenshot that revealed more details about the regulatory body's new model.
Johnsson stated that Invesco is the latest company to adopt the cash creation and redemption standard for its ETF. The trust provides that “creation and redemption transactions will initially be conducted in cash.”
However, in the future, the Trust may allow/require creation and redemption transactions to be conducted on an “in-kind” basis. This is the initial model that has been suggested by several ETF applicants.
For the in-kind model, the participant deposits a collection of securities weighted and compounded according to the ETF portfolio. This will allow investors to receive fund creation units without having to sell the securities for cash instantly.
Bloomberg Senior ETF Analyst Eric Balchunas has also confirmed Invesco's adoption of the latest cash model. The analyst said the company is taking the initiative based on its newly updated S-1 filing.
Blackrock In-Kind Redemption Model
Black Rock recently balanced its Spot bitcoin Exchange-Traded Fund (ETF) application that introduces an in-kind reimbursement model called “Prepaid”. This is to address the restrictions that financial companies face in holding cryptocurrencies.
The adjustment is aimed at making it easier for Wall Street banks to participate in the fund. With this modification, authorized participants (APs) would be able to issue new fund shares using cash instead of just bitcoin.
The funds that APs use for this procedure can later be converted to bitcoin through an intermediary and kept stored by the ETF's custodian provider. As a result of this, it provides access to banks that cannot store cryptocurrencies directly.
Until now, Black Rock believes the model will offer greater protection against market manipulation, which has since been the main reason behind the SEC's rejection of an ETF.
Featured image from iStock, chart from Tradingview.com
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