tl;dr
:The choice of a “cash create” redemption model for spot Bitcoin (BTC) ETF as mandated by the United States Securities and Exchange Commission (SEC) has led to misconceptions in the industry. Bloomberg’s Senior ETF Analyst James Seyffart took the time to debunk some of these myths, clarifying that t...
The choice of a “cash create” redemption model for spot Bitcoin (BTC) ETF as mandated by the United States Securities and Exchange Commission (SEC) has led to misconceptions in the industry. Bloomberg’s Senior ETF Analyst James Seyffart took the time to debunk some of these myths, clarifying that the Bitcoin ETF product will still hold Bitcoin and addressing questions about on-chain addresses for verification. Additionally, BlackRock and WisdomTree have adopted the cash-create model for their ETFs.
With many of the applicants for the Bitcoin ETF product now succumbing to the SEC’s Cash Creates demand, it looks like members of the public believe adopting this redemption model means the fund will not hold Bitcoin. Some others perceive that the Bitcoin ETF product will act as a fractional reserve product upon approval. However, Seyffart emphasized clearly that “Spot Bitcoin ETFs WILL hold Bitcoin.” In response to this clarification, some crypto X members had several questions to ask including one individual who wanted to know if the ETF issuers will publish on-chain addresses so that the public can check and verify how the cash-create model works. To answer this, Seyffart pointed to the fact that Osprey Funds published addresses for its OBTC offering. At the same time, he explained that this was not a strategy adopted by many ETF issuers.
On the subject of cash create redemption and its counterpart; in-kind model, BlackRock had earlier explained the difference in a document presented during one of its meetings with SEC. The in-kind model is completed in only a 5 step process that starts with a Market Marker (MM) requesting redemption through an Authorized Participant (AP). The ETF issuer then approves the order while the MM buys the ETF shares via a Listing Exchange. Consequently, the ETF share is delivered to a Transfer Agent by the MM. Noteworthy, this will happen after the ETF issuer has instructed the Bitcoin custodian to release the coin to the MM. For the cash model, the ETF issuer has to first instruct the BTC custodian to move cash out of cold storage for it to be sold after the redemption has been initiated by the MM. It is after this that MM can enter a trade with the ETF issuer to buy BTC for USD. So far, BlackRock and WisdomTree have adopted the cash-create model. Grayscale also added it to its recent amendment filing, citing that “the Trust is currently able to accept Cash Orders,” a concession that is seen as a positive shift in hopes of bagging an approval.
Disclaimer:
This is not financial advice. Please do your own research before investing in any asset.