BlackRock’s proposed spot Bitcoin (BTC) exchange-traded fund (ETF) has undergone a structural change, potentially enabling significant participation from Wall Street banks. This modification allows authorized participants (APs), crucial to the ETF ecosystem, to create new fund shares using cash instead of being limited to cryptocurrency. This adaptation is particularly noteworthy as it accommodates U.S. banks facing regulatory constraints directly holding Bitcoin.
This strategic shift means that major financial institutions like JPMorgan or Goldman Sachs, which possess some of the world’s largest balance sheets but are restricted from holding Bitcoin, could now act as APs for BlackRock’s ETF. Although it remains to be seen whether these banks will choose to participate, the opportunity is now available.
Under the new arrangement, the cash provided by these APs would be converted into Bitcoin by an intermediary. The ETF’s custody provider would then store this Bitcoin. This change was outlined in a memo related to a November 28 meeting involving the U.S. Securities and Exchange Commission (SEC), BlackRock, and Nasdaq.
There is growing optimism that the SEC will soon approve spot Bitcoin ETFs, a development that could significantly impact the digital assets industry by attracting substantial investment from retail investors. Previously, it was believed that APs would primarily be large market-making firms experienced in crypto, such as Jane Street, Jump Trading, and Virtu. However, this new change means that banks could also become involved, potentially expanding the pool of liquidity providers.
Sui Chung, CEO of CF Benchmarks (the Kraken-owned benchmarks administrator for several existing spot Bitcoin ETF applications, including BlackRock’s), commented on the potential impact of this revised model. Chung explained that if the SEC accepts this dual model of creating and redeeming with cash and physical Bitcoin, it will enhance the liquidity supporting the ETF shares. This increase in liquidity is due to the potential involvement of more APs in the process. He also noted that while trading firms like Jane Street are large and experienced, they do not have the trillion-dollar-plus balance sheets that large American banks possess.