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Bitcoin ETF Update by BlackRock Enhances Bank Accessibility

Bitcoin ETF Application Amendment by BlackRock Expands Bank Access

Bitcoin ETF revisions by BlackRock now feature a streamlined process for major Wall Street banks to participate. The updated application for a spot Bitcoin exchange-traded fund (ETF) allows the creation of new fund shares using cash, thus broadening accessibility to include more than just cryptocurrency assets.

The innovative in-kind redemption system, referred to as the “prepay” model, allows prominent banks like JPMorgan and Goldman Sachs to become authorized participants in the fund. This arrangement enables them to bypass restrictions that prohibit the direct holding of Bitcoin or crypto assets on their financial statements.

During a meeting with the United States Securities and Exchange Commission (SEC) on November 28, six BlackRock members and three from Nasdaq introduced this new model.

If approved, this change could significantly impact Wall Street banks with substantial balance sheets, as many heavily regulated banks face limitations in directly holding Bitcoin.

Under the modified model, authorized participants (APs) would transfer cash to a broker-dealer, convert it into Bitcoin, and securely store it with the ETF’s custody provider — Coinbase Custody, in BlackRock’s case.

Additionally, this revamped structure shifts risk from authorized participants to market makers within the ETF ecosystem.

Diagram of BlackRock's Revised Bitcoin ETF 'Prepay' Redemption Model
This image is a flowchart that illustrates the revised in-kind ‘Prepay’ redemption model for a Bitcoin ETF proposed by BlackRock. It includes various components like a listing exchange, U.S. registered broker-dealer market makers, offshore entity market makers, authorized participants, a transfer agent, prime broker, and Bitcoin custodian Coinbase Custody Trust Company, LLC.

BlackRock emphasized that the new model provides “superior resistance to market manipulation,” a crucial factor in the SEC’s consistent rejection of previous spot Bitcoin ETF proposals.

Moreover, BlackRock stated that the revised ETF framework aims to enhance investor protections, reduce transaction costs, and foster greater “simplicity and harmonization” within the broader Bitcoin ETF landscape.

As per an SEC filing, BlackRock held its third meeting with the Gary Gensler-led SEC on December 11.

The second meeting involving BlackRock and Nasdaq took place on November 28, following an initial session with the securities regulator on November 20, during which they introduced their original in-kind redemption model.

The SEC is required to make a decision on BlackRock’s application by January 15, with the final deadline set for March 15.

In the meantime, ETF analysts expect the SEC to decide on multiple pending spot Bitcoin ETF applications sometime between January 5 and 10.

Several financial firms such as Grayscale, Bitwise, VanEck, WisdomTree, Invesco Galaxy, Fidelity, and Hashdex await the SEC’s decision within this timeframe.

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