ARKs Modified Application
After much forth and back in the drama that is the eagerly awaited decision about U.S. Spot Bitcoin ETFs, some applicants are making amendments to their applications ahead of an expected decision by the United States Securities and Exchange Commission (SEC).
The amendment in Cathie Wood’s ARK 21Shares Bitcoin ETF filing, transitioning from claiming to provide direct exposure to Bitcoin to now offering indirect access, is a significant shift. This change, highlighted in the latest S-1 amendment, may introduce confusion in understanding the nature of spot crypto ETFs. Such a pivot in language could have implications for investor expectations and the perception of the product in the evolving landscape of cryptocurrency-based financial instruments.
Bloomberg Analyst Explains
Eric Balchunas, a Senior ETF Analyst at Bloomberg, reported that the SEC’s Trading & Markets division is engaging with exchanges on spot Bitcoin ETF 19b-4 filings. The SEC advises these ETFs to use cash creates instead of in-kind, which aligns with the limitation that broker-dealers cannot directly handle Bitcoin.
This approach shifts the transaction responsibility to issuers. While only a few filers had planned for cash creates, others may need to adjust to avoid delays. Balchunas maintains his 90% odds for the SEC’s approval path, noting that while the SEC favours cash creates, in-kind might be better for investors regarding spread and taxation.
Cash Creates or In-Kind Creates
The choice between cash and in-kind creates in Spot Bitcoin ETFs involves balancing regulatory ease and compliance (favoured by cash creates) against potential benefits for investors like narrower spreads and tax efficiency (offered by in-kind creates). Balchunas suggests that while the SEC might prefer cash creates for regulatory reasons, there is a possibility that issuers could advocate for in-kind creates due to its advantages for investors.
Because with cash creates, the onus of transacting in Bitcoin falls on the ETF issuer rather than the broker-dealers. This is significant because broker-dealers often face regulatory constraints in directly handling Bitcoin.
In-kind creates on the other hand, can be more beneficial for investors in terms of reducing the spread (the difference between the buying and selling price) and offering potentially better tax implications.
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