Wall Street Banks Poised to Enter the Bitcoin Market
BlackRock, the world's largest asset manager, is making changes to its spot Bitcoin exchange-traded fund (ETF) application in order to attract participation from major Wall Street banks. The revised model allows banks like JPMorgan and Goldman Sachs to create new shares in the fund using cash, rather than just cryptocurrency. This change circumvents restrictions that prevent these banks from holding Bitcoin directly on their balance sheets, opening up new opportunities for their involvement.
A New Model for Access
The new model, known as the in-kind redemption "prepay" model, was presented by BlackRock and NASDAQ to the United States Securities Exchange Commission (SEC) in a meeting on November 28. If approved, this model could be a game-changer for highly regulated banks with trillion-dollar balance sheets, as it enables them to participate in the Bitcoin market without directly holding the cryptocurrency.
How It Works
Under the revised model, authorized participants (APs) from banks transfer cash to a broker-dealer, who then converts the cash into Bitcoin. The Bitcoin is then stored by the ETF's custody provider, Coinbase Custody in the case of BlackRock. This new structure also shifts risk away from APs and places it more in the hands of market makers.
Addressing Concerns
BlackRock claims that this new model offers "superior resistance to market manipulation," which has been a primary concern for the SEC in previous Bitcoin ETF applications. The asset manager also highlights that the new structure strengthens investor protections, lowers transaction costs, and increases simplicity and harmonization across the wider Bitcoin ETF ecosystem.
SEC Meetings and Decision Timeline
BlackRock has met with the SEC three times, most recently on December 11. The SEC must make a decision on the BlackRock application by January 15, with the final deadline set for March 15. ETF analysts predict that the SEC will issue a decision on several pending spot Bitcoin ETF applications between January 5-10. Other financial firms, including Grayscale, Bitwise, VanEck, WisdomTree, Invesco Galaxy, Fidelity, and Hashdex, also await the SEC's decision during this timeframe.
