Bitcoin ETF Approval: Navigating the Final Challenge

As the January deadline set by the Securities and Exchange Commission approaches, marking the crucial moment for the approval, denial, or potential delay of spot Bitcoin ETFs, issuers find themselves facing a significant obstacle: authorized participants.

Bitcoin ETF Approval: Navigating the Final Challenge

According to Bloomberg Intelligence analyst Eric Balchunas, each aspirant for a Bitcoin ETF must outline explicit authorized participant parameters in its S-1 filing to be seriously considered for approval. The introduction of this authorized participant requirement seems to be the SEC’s deliberate effort to precisely define the entities eligible to engage in the creation and redemption of Bitcoin ETF shares. This, in turn, establishes clarity on who can directly manage transactions involving BTC.

This is no easy last step, and may keep some from [the] starting gate,” Balchunas said Friday on Twitter. He went on to hypothesize that, “AP agreement + cash creates = approval.

Eric Balchunas

In essence, an authorized participant refers to an organization, distinct from the issuer, that possesses the privilege to create and redeem ETF shares. Typically, this role is assumed by large banks and financial institutions.

Bitcoin ETF Approval Hangs in the Balance, Facing a Potential Last Hurdle

For over a decade, the financial industry has eagerly sought approval for a spot Bitcoin ETF, a product aimed at providing U.S. investors with direct access to the cryptocurrency market. However, the Securities and Exchange Commission (SEC) has consistently voiced concerns, citing various risks that have prevented them from greenlighting such offerings. Chief among these concerns are the perceived threats of market manipulation and the challenge of establishing reliable price discovery.

Bloomberg Intelligence analyst Eric Balchunas highlighted the current landscape of Bitcoin ETF hopefuls through a table, revealing that half of them still permit the creation of shares through either cash or in-kind transactions. Balchunas, however, emphasized that the SEC is particularly averse to in-kind share creation, as it involves registered brokers utilizing Bitcoin—a practice deemed unacceptable by the SEC.

During a recent webinar, Balchunas commented on the SEC’s stance, stating, ‘The SEC just was not going to be comfortable enough with in-kind because it allows registered brokers to use Bitcoin, and that’s not allowed. I don’t think they want any unregistered subsidiaries to touch Bitcoin. Cash creation solves that—it means the issuer basically touches the Bitcoin and no one else.’