KEY POINTS
- Spot Bitcoin ETF issuers must state authorized participant in their S-1 registration
- An authorized participant could be a financial institution that manages the creation and redemption of ETF shares in the primary market
- Bitcoin was trading in the red zone at $43,168.51 as of 5:42 a.m. ET on Monday
As reports claim that the U.S. Securities and Exchange Commission (SEC) is poised to announce the first wave of spot Bitcoin exchange-traded fund (ETF) issuers in the early part of January 2024, it appears that applicants will have to overcome another hurdle in their applications before being approved.
Over the past few weeks, several companies, including Blackrock and ARK, amended their S-1 registration with the SEC, to make it to the first batch of approved spot Bitcoin ETF issuers.
Blackrock and ARK gave into SEC's supposed preference of using a cash creation and redemption model on the spot Bitcoin ETF instead of the in-kind model both previously used in their registration.
However, it appeared that the SEC is not done yet, according to Bloomberg Intelligence senior ETF analyst Eric Balchunas, who said that issuers will have to face the not-so-easy last step and would need to explicitly authorize participant parameters in its S-1 form before the commission would consider it for approval.
He further speculated that for the SEC to approve the spot Bitcoin ETF application, issuers must provide an authorized participant (AP) agreement.
"Latest snapshot of The ETF Cointucky Derby w new column for "AP Agreement" as SEC wants AP (who is also underwriter) named in next S-1 update (coming in next 10 days). This is no easy last step, and may keep some from starting gate. AP agreement + cash creates = approval," Balchunas' tweet read.
Latest snapshot of The ETF Cointucky Derby w new column for "AP Agreement" as SEC wants AP (who is also underwriter) named in next S-1 update (coming in next 10 days). This is no easy last step, and may keep some from starting gate. AP agreement + cash creates = approval @JSeyff pic.twitter.com/e8cgCuUBLN
— Eric Balchunas (@EricBalchunas) December 22, 2023
The authorized participant requirement seemed like the SEC's attempt to underline who can and who cannot handle spot Bitcoin ETF.
But what does an authorized participant mean?
An authorized participant could be a financial institution like a bank that manages the creation and redemption of ETF shares in the primary market, whose role includes adjusting the number of outstanding ETF shares and maintaining the price of an ETF with the value of its underlying security, in this case, Bitcoin.
While a spot Bitcoin ETF in the U.S. is one of the highly anticipated and most wanted crypto investment vehicles in the country, the SEC has been consistent with its stance that the product involves too many risks.
Recently, it was reported that the SEC preferred the cash creation and redemption model on spot Bitcoin ETF over its concern that the in-kind model would be used for money laundering.
Bitcoin, the world's oldest crypto asset, was trading in the red zone at $43,168.51 with a 24-hour trading volume up by 34.87% at $19.47 billion as of 5:42 a.m. ET on Monday.
Bitcoin's latest price action represents a 1.07% decrease in its value in the past 24 hours and a 5.01% gain over the last seven days.
Data from CoinMarketCap showed that Bitcoin's circulating supply stands at 19.58 million BTC and its market cap is at $844.93 billion.
