As bitcoin ETF saga hits possible homestretch, here’s what to watch for

Bloomberg Intelligence analyst Eric Balchunas says final agreements with authorized participants will be critical as issuers prep proposed BTC funds


Artwork by Crystal Le


As industry watchers eye the potential approval of spot bitcoin ETFs, one analyst says specific application updates in the coming days could be the difference between firms being able to launch such products, and not. 

The US Securities and Exchange Commission is set to rule on a spot bitcoin ETF proposal by Ark Invest and 21Shares by Jan. 10. Some segment observers have said they expect the regulator to rule on other similar planned products at that time.

The regulator set a Dec. 29 deadline for fund groups to submit final updates to their bitcoin ETF filings, Reuters reported last week, citing unnamed firm executives.  

Would-be issuers of these funds have met with the SEC in recent weeks and continue to update their applications. But fund groups are likely to add more details in the coming days, according to Bloomberg Intelligence analyst Eric Balchunas. 

“The SEC is ready to approve spot bitcoin ETFs, but only if they have clear language around cash-only creations and have a signed agreement with an authorized participant — which many don’t yet,” Balchunas wrote in a Wednesday research note.

Authorized participants are entities allowed to create and redeem shares of an ETF. Such organizations can either exchange ETF shares for a corresponding basket of securities that reflects the ETF’s holdings, or exchange them for cash.

Read more: The SEC continues meeting with bitcoin ETF hopefuls. Here’s what they’re discussing

Though Grayscale Investments appeared to argue in meetings with the SEC that in-kind transactions are more efficient, it noted in a Tuesday filing that its proposed spot bitcoin ETF would only be able to accept cash orders. 

“However, and in common with other spot bitcoin exchange-traded products, the trust is not at this time able to create and redeem shares via in-kind transactions with authorized participants, and there has yet to be definitive regulatory guidance on whether and how registered broker-dealers can hold and deal in bitcoin in compliance with the federal securities laws,” the document states.

BlackRock‘s proposed spot bitcoin ETF would also feature cash creations and redemptions — a change the SEC seems to have pushed for based on various proposal amendments.

While some firms have agreed to “bend the knee” to the SEC on the cash transactions issue, Balchunas said, securing an agreement with an authorized participant could be trickier. 

“A lot will unfold in the next 48 hours; you hope they all can get it done and have the AP named in the S-1 as of Friday,” he told Blockworks.

“When I see a prospectus with the AP named…I’m basically assuming that is a horse at the starting gate ready for approval, but that is up in the air,” Balchunas added. “Making it to the starting gate is half the battle at this point, so there’s a race before the race.”

Balchunas said in the Wednesday research note that Bitwise and BlackRock have authorized participant agreements in place, though they have not revealed them in filings. Spokespeople for the two companies did not immediately return a request for comment. 

Grayscale all set?

Grayscale was reportedly set to work with authorized participants Jane Street and Virtu Financial if its Grayscale Bitcoin Trust (GBTC) was allowed to convert to an ETF — a report a Grayscale spokesperson confirmed at the time. 

The firm did not name these companies as authorized participants in its latest S-3 filing, and a Grayscale representative did not comment further. 

“Even with all the crucial boxes checked, it’s possible the SEC still holds [Grayscale] back from the starting gate in the name of keeping a level playing field,” Balchunas wrote. 

GBTC launched in 2013, and eligible shares of the trust are quoted on the OTC Markets Group. It has roughly $26 billion in assets under management and regularly sees roughly $150 million in daily volume, the Bloomberg Intelligence analyst said in his latest note.

“That’s a huge advantage for GBTC and makes it a clear favorite, even with the likes of BlackRock and Fidelity in the race,” Balchunas added. “This puts the SEC in a conundrum and risks it becoming a kingmaker.”

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