According to an S-1 report recently filed with the U.S. Securities and Exchange Commission (SEC), global financial leader BlackRock is seeking to stimulate the cryptocurrency market through a proposed amendment to its spot Bitcoin exchange-traded fund (ETF) called IBIT. Great progress has been made.
The filing provides detailed insight into the creation and redemption process, an important aspect of BlackRock’s ongoing discussions with the SEC. The proposal is geared toward a “cash repayment model” but retains flexibility for an “in-kind” process, subject to regulatory approval.
This involves continuously issuing and redeeming baskets, primarily in cash. Eric Balchunas, a cryptocurrency analyst at Bloomberg, highlighted BlackRock’s choice of a cash-only model, signaling a strategic move ahead of the holiday season.
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Two repayment models explained
The document introduces two repayment models: a direct transaction model and an agent execution model. The former involves a direct transaction with a Bitcoin counterparty, the latter involves surrendering shares and paying associated fees, and the trust converts the Bitcoin into cash for redemption.
The trust’s management agreement includes temporary transfers of bitcoin to pay for transactions and expenses, supported by trade finance agreements for borrowing bitcoin or cash. Tax implications for shareholders are also addressed, with a focus on recognizing gains or losses from Bitcoin sales. The proposed “in-kind” repurchase model favored by BlackRock generally avoids the occurrence of a taxable event.
Regulatory discussions and industry engagement
Regulatory discussions highlight the SEC’s preference for the “cash model” despite BlackRock’s tendency to prefer the “spot” model. Industry leaders such as BlackRock and Fidelity have been actively working with the SEC regarding the redemption process for spot Bitcoin ETFs. While BlackRock’s proposal is underway, final regulatory approval is still pending, and companies like Ark 21Shares and WisdomTree are also awaiting SEC decisions.
BlackRock’s proposed IBIT ETF marks a notable entry into the cryptocurrency sector. The detailed filing highlights creation and redemption mechanisms, regulatory compliance, tax implications, and outlines BlackRock’s comprehensive strategy for this venture. As the cryptocurrency investment landscape awaits regulatory approval, the market is poised for a potential shift in dynamics.