- The SEC continues to debate approval of spot bitcoin ETFs, with the core issue being how to handle redemptions if investors want to cash out their shares for actual bitcoin.
- The SEC prefers a cash redemption model while asset managers argue for an in-kind structure, as the SEC is worried about harming investors and managers want to avoid liquidation risks.
- While technical, these redemption model debates represent the final hurdle before SEC approval of a spot bitcoin ETF, with compromise on protecting investors without burdening managers potentially leading to approval soon.
The SEC continues to debate approval of spot bitcoin ETFs with major asset managers like BlackRock and Fidelity. The core issue remains how to handle redemptions if investors want to cash out their shares for actual bitcoin. The SEC prefers a cash redemption model while asset managers argue for an in-kind structure. The details may seem minor but could determine whether we finally see a spot bitcoin ETF in the US.
Redemption Models: The Devil is in the Details
The SEC worries that a spot bitcoin ETF could harm investors if redemptions aren’t handled carefully. Their preferred cash redemption model requires the ETF manager to immediately sell bitcoin to return cash to investors. Asset managers argue this leaves them exposed to timing and liquidation risks.
Instead, BlackRock and Fidelity advocate for an in-kind redemption model. This allows them to meet redemptions by providing investors their share of bitcoin holdings. The manager avoids selling at possibly unfavorable prices. BlackRock has proposed a “revised” in-kind model that would pay cash but give them more flexibility on when and how to liquidate bitcoin.
The Path Forward
While technical, these redemption model debates represent the final hurdle before SEC approval of a spot bitcoin ETF. The agency seems close to a decision after years of rejections. Ironing out details with major players like BlackRock and Fidelity hints optimism. Both sides want to protect investors without burdening managers. With compromise an approval could come soon, finally opening the floodgates to billions in investment.
