Bitcoin is the digital world’s non-sovereign reserve currency and serves as a unique way to diversify portfolios, consequently enhancing total risk-adjusted returns. However, despite numerous possibilities for capitalizing on this preeminent virtual asset, there remained one notable deficiency: the creation of a spot bitcoin ETF.
The pursuit of a spot bitcoin ETF has been a considerable endeavor. The SEC (Securities and Exchange Commission) has denied all 33 previous applications spanning across multiple filers ever since the Winklevoss twins first initiated their bid over a decade ago.
However, due to recent developments like BlackRock Inc (BLK) – managing an incredible $8.5 trillion in assets under management (AUM) – joining the fray in June, Grayscale’s court triumph against the SEC rescinding its past application disapproval, followed by the fresh approvals of a leveraged Bitcoin futures ETF and Ethereum futures ETFs, we have come closer than ever.
Further adding to this progress, according to recently disclosed data, BLK has submitted an application for a spot Bitcoin ETF despite unwavering prior rejections from the SEC.
The SEC has previously spurned applications on the basis that Bitcoin’s decentralization and volatility could hinder fund managers from safeguarding investors against market manipulation. Currently, all U.S.-traded bitcoin ETFs are tied to futures contracts traded on the Chicago Mercantile Exchange.
In its application, BLK announced JPMorgan Securities as one of the “Authorized Participants” for its proposed Bitcoin ETF.
U.S. banks like JPMorgan Chase & Co. (JPM), governed by strict regulations, currently cannot hold Bitcoin directly. However, the proposed structural change to spot bitcoin ETFs could alter this scenario. The modification would enable APs to create new shares within the fund using cash instead of strictly relying on cryptocurrency. This paves the way for these regulated banking entities that are unable to hold crypto assets directly.
Authorized participants generally oversee the creation and redemption of ETF shares in the primary market, ensuring the ETF’s price aligns with the value of the underlying securities, in this case, Bitcoin.
Securing authorized-participant agreements is typically straightforward for ETF issuers, yet concerns were raised that bitcoin funds could face challenges due to cryptocurrencies being a relatively new asset class.
If approved, JPM could potentially serve this role for the first such ETF in the U.S., a move anticipated to attract billions in institutional capital and stimulate the cryptocurrency market.
Critics have been quick to note the contradiction in JPM’s involvement, given CEO Jamie Dimon’s repeated criticism of Bitcoin, advocating for a government ban on cryptocurrencies due to concerns over their legitimacy.
However, Bloomberg Intelligence analysts suggest the SEC could approve spot Bitcoin ETF proposals committing to cash-only creations and redemptions, provided there are agreements with authorized participants. They estimate a 90% probability of SEC approval, with several firms expected to…
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