Blackrock Proposes ‘Revised In-Kind Model’ for Spot Bitcoin ETF to Resolve SEC’s Concerns

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Blackrock, the world’s largest asset manager, has held another meeting with the U.S. Securities and Exchange Commission (SEC) to discuss its spot bitcoin exchange-traded fund (ETF) application. The firm has proposed a “revised in-kind” model for its spot bitcoin ETF that it believes will “resolve” the SEC’s concerns. The regulator has reportedly indicated that it prefers spot bitcoin ETFs to use the cash creation method.

Revised In-Kind Model for Spot Bitcoin ETF

Blackrock, the world’s largest asset manager, held another meeting with the U.S. Securities and Exchange Commission (SEC)’s Division of Trading and Markets this week regarding its spot bitcoin exchange-traded fund (ETF) application. According to a memorandum dated Nov. 28 posted on the SEC’s website, the two parties discussed “Nasdaq Stock Market LLC’s proposed rule change to list and trade shares of the iShares Bitcoin Trust.”

The asset management firm explained: “During our 11/20 meeting with Trading & Markets staff, we understood the SEC has certain unresolved questions around the in-kind model relating to balance sheet impacts and risks to the market maker’s U.S. registered broker/dealer entity … during the redemption flow.”

Blackrock proceeded to explain its proposal of a “revised in-kind model,” also called a “prepay model,” which it believes would resolve the SEC’s concerns. “We would like to propose the following approach, that we believe would resolve these concerns,” the world’s largest asset manager wrote. “This model appears to address the staff’s concern with in-kind, addressing the critical dimension on which the in-kind model would otherwise be not preferred to the cash model.” The firm elaborated:

It preserves the many significant benefits to investors of the in-kind model over certain cash models in the context of bitcoin.

Blackrock detailed that the benefits offered by the revised in-kind approach include lower transaction costs, execution risks borne by crypto market makers instead of investors, heightened resistance to market manipulation, elimination of the necessity for issuers to fund or pre-fund sell trades, diminished operational event risks, “and simplicity and harmonization across the ecosystem given significantly lower variance on how in-kind models can be executed vs. cash models.”

Nonetheless, the SEC is said to favor the cash model. Recently, Bloomberg ETF analyst Eric Balchunas shared on X that the SEC’s Division of Trading and Markets has purportedly communicated with exchanges, advising them to opt for the cash-create approach for spot bitcoin ETFs rather than the in-kind method. Following this report, Blackrock held discussions with the SEC to address the matter, maintaining its stance on using the in-kind creation model.

SEC Chair Gary Gensler recently revealed that the regulator is considering between eight and 10 spot bitcoin ETF applications. A number of people have predicted that the securities regulator will approve multiple spot bitcoin ETFs at once early next year.

Do you think the SEC will approve Blackrock’s spot bitcoin ETF application if the asset manager insists on using the in-kind model? Let us know in the comments section below.