Bloomberg Analyst Outlines Need for Authorized Participant for Bitcoin ETF 

As the crypto community awaits the resurfacing of the bulls in 2024, prominent analysts are still mulling over the possibility of approving the spot Bitcoin exchange-traded funds (ETF).

 In a December 23 X update, Bloomberg Intelligence Eric Balchunas regretted that the process for the approval of the Bitcoin ETF might take longer than expected.

Bitcoin ETF Hopefuls Awaits for SEC Approval

 The analyst projects that US Securities and Exchange Commission (SEC) feedback concerning the spot Bitcoin ETF might require the asset managers to state the “Authorized Participant” feature on their application. 

The official argued that the SEC would mandate the asset managers to review their applications by completing the authorized participant requirement. In his tweet, Balchunas explained that the last stage for approving the Bitcoin ETF might be more complicated. 

The analyst argued that the SEC would require the spot Bitcoin ETF applicants to seal the authorized participant agreement and meet the cash-created requirements before proceeding to the approval stages.

 An authorized participant refers to an individual or entity legally allowed to create shares for the ETF. Balchuna anticipates that the SEC will thoroughly determine the eligible application for the creation and redemption of Bitcoin ETF shares. 

Occasionally, the regulators task fast-paced financial institutions and banks in offering ETF shares. The analyst anticipates that the regulators will strive to increase the number of authorized participants for the ETF to increase the liquidity and cap deficiency in shares in the market.

 However, based on the risk associated with a high supply of shares in the market, Balchuna envisages that the regulators might be wary of appointing authorized participants. 

He noted that increasing the number of authorized participants will maintain the price of ETF shares in line with Bitcoin. Even though the SEC has been reluctant to approve the spot Bitcoin ETF, Balchuna anticipates that before the end of January, the market regulators might either approve or reject the pending applications. 

Role of Authorized Participant

In an earlier report, the SEC regretted that the approval of the spot Bitcoin ETF might expose customers to risks such as market manipulation and fraud. Despite the risk linked to the Bitcoin ETF, the analyst showcased a table containing asset managers seeking to introduce this financial product to its product offering.

 He noted that some applicants anticipate creating shares through their local currency while other will explore in-kind share option. Based on his vast experience in financial matters, the analyst described the in-kind share-creation approach as a starter for the SEC. 

He argued that the SEC might be uncomfortable with the in-kind method, allowing brokers to use Bitcoin in share creation. The executive stated that the SEC might restrict the unregistered subsidiaries from interacting with Bitcoin in share creation or redemption due to compliance issues. 

Compared to the cash-shared creation method, Balchuna argued that the SEC might discontinue the in-kind option to restrict the accessibility of Bitcoin to only the authorized issuer. The Balchuna report came weeks after the profound asset managers engaged in an intense discussion with the SEC concerning the spot Bitcoin ETF. 

Asset Managers Meets with SEC to Discuss on Bitcoin ETF

The officials from Grayscale, BlackRock and Valkyrie challenged the SEC to expedite the approval of the Bitcoin ETF. From the series of closed-door meetings between the SEC and the asset managers, the community remains optimistic that the regulators will ultimately approve the Bitcoin ETF.

 In the meantime dozen of asset managers are seeking to introduce the spot Bitcoin ETF services. Based on the requirement for offering the spot Bitcoin ETF, the regulators tasked the asset managers to revise their S-1 application accordingly.

A few ago, BlackRock resubmitted its S-1 application to the SEC. After multiple amendments on the S-1 application, the BlackRock team agreed to create the share with cash option and changed the ETF ticker symbol from IBTC to IBIT. 

The BlackRock team anticipates that after the SEC greenlights the pending Bitcoin ETF, it will trade on Nasdaq.

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