The SEC’s requirement for potential spot Bitcoin ETFs regarding the form of issue and redemption will make these products less effective, according to venture capitalist Nick Carter and BitMEX experts.
See more
The real world consequence of this is that ETFs will be less efficient because creation redemption will be more expensive. Not sure if that means tracking error or higher expense ratio but either way more expensive
— nic 🌠 carter (@nic__carter) December 27, 2023
The community drew attention to the updated application of Grayscale Investments, in which a clause appeared on the repurchase of the underlying asset and the redemption of fund shares only in cash instead of in kind.
See more
Grayscale finally surrendering to cash-only creations, was a big holdout. Pretty sure they have an AP agreement (a crucial last step) so that would check all the boxes. That said, still a mystery whether they will be allowed to go on day one of the Cointucky Derby https://t.co/Wm7TfD3zkP
— Eric Balchunas (@EricBalchunas) December 26, 2023
According to Bloomberg stock analyst Eric Balchunas, the company strongly resisted the introduction of this rule. Colleague James Seyffarth wrote that Grayscale appears to have “bowed its knees.”
Scott Johnsson, a lawyer specializing in finance, doubted that compliance with this Commission requirement would somehow improve investor protection, contrary to the regulator’s arguments. All existing commodity spot ETFs operate on an in-kind model, which means moving away from it involves a new risk factor, he noted.
See more
Grayscale’s amended S-3 gives a nice little background on the key sticking point for in-kind creation/redemption. The SEC promulgated rulemaking for digital asset safekeeping. Despite the fact that BDs and exchanges apparently believe they could comply with the rule and offer… pic.twitter.com/SdudYdsgoR
— Scott Johnsson (@SGJohnsson) December 27, 2023
“The real consequence of this is that ETFs will be less efficient because they will become more expensive to create and redeem. Not sure if this means tracking error or a higher expense ratio, but either way it’s more expensive,” Carter commented on Johnsson’s tweet.
The findings of founding partner Castle Island Ventures were supported by specialists from the BitMEX research division. In their opinion, settlements solely in cash will not allow authorized market participants to profit from premiums or discounts through transactions with the underlying asset and fund units. This means that many of the benefits of the exchange-traded product structure and much of the competition that makes ETFs effective are lost, experts said.
See more
The way ETFs are supposed to work is as follows:
If the ETF is trading at a premium, often caused by more buyers than sellers, the authorised participants (APs) are incentivised to purchase the underlying instruments and deliver them to the issuer to receive new ETF units. The… https://t.co/UyXeRRMJRs
— BitMEX Research (@BitMEXResearch) December 27, 2023
“It is critical that there are multiple competing access points. This ensures that the product can handle large flows and have low tracking error,” said BitMEX Research.
As a reminder, the SEC has set December 29 as the deadline for applicants to submit updated applications to launch spot Bitcoin ETFs.
The community predicts that the regulator will make a positive decision before January 10, 2024. Advertisements for future exchange-traded products have already appeared on television.
Subscribe to ForkLog on social networks
Found an error in the text? Select it and press CTRL+ENTER
ForkLog newsletters: keep your finger on the pulse of the Bitcoin industry!
2023-12-27 14:43:05
#Experts #concerned #SEC #requirements #Bitcoin #ETFs #ForkLog
