Wall Street Banks Invited to Participate in BlackRock's Bitcoin ETF

• Modification in BlackRock's Bitcoin ETF Mechanics Allows Wall Street Banks to Participate
• Changing Role of Authorized Participants
• Conversion of Cash into Bitcoin
• Rising Optimism for Spot Bitcoin ETF Approval
• Impact on Liquidity

Modification in BlackRock's Bitcoin ETF Mechanics Allows Wall Street Banks to Participate

The mechanics of the proposed spot bitcoin (BTC) ETF by BlackRock has undergone a change that could enable Wall Street banks to play a critical role. These banks, currently facing restrictions on holding cryptocurrencies, can leverage this setup to their benefit.

Changing Role of Authorized Participants

BlackRock has recently allowed authorized participants, an essential component of the ETF ecosystem, to create new fund shares using cash instead of only cryptocurrency. This change is significant because, due to regulatory constraints, U.S. banks cannot hold bitcoin directly. Hence, such a setup would allow financial behemoths like JPMorgan or Goldman Sachs, which have some of the largest balance sheets globally, to act as authorized participants (APs) for BlackRock's ETF.

Conversion of Cash into Bitcoin

The cash that APs provide in this process could be exchanged into bitcoin by a mediator and then stored by the ETF's custody provider. This arrangement was disclosed in a memo filing that documented a meeting on November 28 between BlackRock, Nasdaq, and the U.S. Securities and Exchange Commission (SEC).

Rising Optimism for Spot Bitcoin ETF Approval

There is a growing optimism that the SEC will soon approve spot bitcoin ETFs, which could drastically change the digital assets industry by attracting an enormous influx of retail investor money. It was previously believed that APs would be significant market-making firms with crypto experience, like Jane Street, Jump Trading, and Virtu, and not banks. However, this modification could allow banks to participate and widen the circle of liquidity providers.

Impact on Liquidity

As Sui Chung, CEO at CF Benchmarks, explained, the acceptance of this revised model of create and redeem with cash and physical by the SEC could lead to an increase in ETF shares' liquidity. Chung stated, More potential APs are part of the process which will support an increase in trading liquidity. CF Benchmarks, the benchmarks administrator owned by Kraken, serves several existing spot bitcoin ETF applications, including BlackRock's. He emphasized that even though trading firms like Jane Street are large and experts, they do not hold a balance sheet exceeding a trillion dollars, unlike large American banks.

Edited by Jonathan Stoker