Bloomberg analyst Eric Balchunas reported on November 17 that securities regulators are instructing spot Bitcoin ETF applicants to handle funds in a specific way.
In a post on X, Balchunas wrote:
“Hear chatter [that the Securities and Exchange Commission’s Trading & Markets division] concerned [with] exchanges this week on spot bitcoin ETF 19b-4s, advising them that they want the ETFs to generate cash (versus in-kind), and has asked them to submit changes in the next few [weeks].”
In an in-kind creation, a participating company or institution would provide matching assets, in this case Bitcoin, and in return receive shares of the spot Bitcoin ETF. When creating cash, the participant would instead provide cash to receive shares of the ETF.
While in-kind creations are common, Balchunas explained that cash creation could be preferable in the case of spot Bitcoin ETFs because broker-dealers cannot trade Bitcoin. He said creating cash would keep issuers accountable for transactions in Bitcoin, while allowing brokers to avoid having to rely on unregistered subsidiaries and third-party companies. Balchunas said this approach would result in “fewer restrictions” overall.
Balchunas estimated that only two or three of the current Bitcoin ETF applicants were planning to fundraise prior to the rumor, meaning the other companies may have to adjust the content of their applications or risk having their application delayed .
Balchunas said the current development does not change his prediction that there is a 90% chance of approval of a Bitcoin ETF in January. He called the development a “good sign” and an indication that the SEC has a path forward.
The rumor has not been verified
Balchunas did not provide any source for the rumor, and the SEC has provided few public details about how it deals with ETF applicants.
However, the SEC began seeking input on several ETF filings starting in late September, lending credence to the rumor that cash might have been one of the ideas put forward. Those questions further focused on known controversies, such as concerns around market manipulation and oversight sharing agreements.
The SEC is expected to approve or reject a spot Bitcoin ETF early next year, as a filing from ARK Invest has a decision deadline of January 10, 2024.