Bitcoin ETF

Bitcoin

<p>BlackRock has just warned the SEC about potential risks associated with in-kind orders for Bitcoin ETF shares. Amidst debates regarding liquidity creation models, investor security is now at the center of concerns.</p>
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     <p lang="en" dir="ltr">BlackRock warned SEC lack of in-kind orders for <a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw" rel="noopener noreferrer nofollow">#Bitcoin</a> ETF shares could hurt investors<br><br>via <a href="https://twitter.com/akibablade?ref_src=twsrc%5Etfw" rel="noopener noreferrer nofollow">@akibablade</a> <a href="https://t.co/B6se2s1S1U" rel="noopener noreferrer nofollow">https://t.co/B6se2s1S1U</a></p>— CryptoSlate (@CryptoSlate) <a href="https://twitter.com/CryptoSlate/status/1750891599557746825?ref_src=twsrc%5Etfw" rel="noopener noreferrer nofollow">January 26, 2024</a>
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  Bitcoin ETF: BlackRock cautions about cash creations
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<h2 id="h-the-liquidity-creation-model-of-bitcoin-etfs-is-not-universally-accepted">The liquidity creation model of Bitcoin ETFs is not universally accepted</h2>
<p>In accordance with <a href="https://www.cointribune.com/en/etf-bitcoin-approved-the-very-first-etf-makes-its-debut-on-the-stock-exchange-on-january-11/" target="_blank" rel="noopener noreferrer nofollow">SEC’s approval</a>, the new Bitcoin ETFs will adopt a <strong>cash-based liquidity creation model</strong>. This approach has sparked significant debate within the financial industry.</p>
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<p>In <a href="https://www.reuters.com/technology/nasdaq-refiles-blackrocks-bitcoin-etf-application-with-sec-2023-07-03/" target="_blank" rel="noopener noreferrer nofollow">its filed documents</a>, <strong>BlackRock strongly argued for in-kind orders</strong>, highlighting their efficiency and lower cost compared to cash creations. However, the SEC has guided applicants towards the liquidity creation model due to the specific nature of regulatory processes.</p>
<p>The complexity lies in the direct handling of Bitcoin by <a href="https://www.cointribune.com/en/etf-bitcoin-blackrock-fidelity-et-dautres-postulants-elisent-leurs-courtiers-2/" target="_blank" rel="noopener noreferrer nofollow">these brokers</a>, raising questions about <strong>compliance with financial regulations</strong>. Currently, the lack of clarity on these aspects has led to a transition of Bitcoin ETF requests to a cash contribution model in December, just before approval.</p>
<h2 id="h-blackrock-criticizes-the-sec-s-model">BlackRock criticizes the SEC’s model</h2>
<p>As the world’s largest asset manager, BlackRock expresses significant concerns about the effectiveness of the liquidity creation model adopted by Bitcoin ETFs. The <strong>BlackRock’s iShares Bitcoin ETF (IBIT) prospectus</strong> cautions against potential risks related to the current practice of buying and selling shares for cash rather than using <a href="https://www.cointribune.com/en/bitcoin-blackrock-elevates-the-leading-cryptocurrency-to-the-title-of-emerging-asset/" target="_blank" rel="noopener noreferrer nofollow">Bitcoin</a> directly.</p>
<p>According to BlackRock, this method could cause problems in keeping the share prices aligned with the actual value of Bitcoin. In the “Risk Factors” section, it also highlights <strong>the consequences on the arbitrage operations of Authorized Participants</strong>.</p>
<h2 id="h-the-implications-on-bitcoin-etf-prices">The implications on Bitcoin ETF prices</h2>
<p>Since the launch of Bitcoin ETFs, <strong>the net asset value premium</strong> over the discount spread has maintained relative stability. It has ranged from +40 basis points to -30 basis points over 10 trading days.</p>
<p>BlackRock’s Bitcoin ETF has not deviated beyond +5 basis points and -11 basis points during the last 12 months. This consistency suggests that <strong>Bitcoin ETFs maintain a certain level of stability</strong>, despite BlackRock’s concerns.</p>
<p>Regardless, investors will need to remain vigilant as this debate evolves. It could have significant repercussions on <a href="https://www.cointribune.com/ceo-de-blackrock-le-bitcoin-vous-protege/" target="_blank" rel="noopener noreferrer nofollow">the value</a> of Bitcoin ETFs.</p>

Bitcoin ETF: Cash creations vs. in-kind creations? BlackRock launches the debate

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