BlackRock's Bitcoin ETF Alters Structure, Welcomes Wall Street Banks

BlackRock, a major player in the financial industry, has modified the design of its proposed spot bitcoin exchange-traded funds (ETFs), potentially paving the way for the involvement of Wall Street banks. The adjustment allows authorized participants (APs) in the ETF ecosystem to generate new shares using cash, not solely cryptocurrency, enabling regulated banks like JPMorgan and Goldman Sachs, which face constraints in directly holding cryptocurrencies, to engage as APs in BlackRock's ETF.

In a recent move, BlackRock granted flexibility to APs, a critical component of the ETF framework, enabling them to create new fund shares using cash. This adjustment is significant for highly regulated U.S. banks that are restricted from holding bitcoin directly. With this setup, major financial institutions with substantial balance sheets, such as JPMorgan and Goldman Sachs, could potentially become APs for BlackRock's ETF, acting as intermediaries to convert cash into bitcoin.

This development emerged from a memo filing related to a meeting held on Nov. 28, involving BlackRock, the U.S. Securities and Exchange Commission (SEC), and Nasdaq. While it remains to be seen whether banks will capitalize on this opportunity, the potential involvement of these financial giants as APs represents a noteworthy shift in the landscape of spot bitcoin ETFs.

The adjustment addresses the challenge faced by banks that are unable to directly hold cryptocurrencies, providing them with a viable route to participate in the cryptocurrency market indirectly. The involvement of major banks as APs could significantly contribute to the liquidity of the ETF shares, potentially attracting more retail investors and reshaping the digital assets industry.

There is growing optimism regarding the approval of spot bitcoin ETFs by the SEC, and if granted, it could mark a transformative moment for the cryptocurrency market, drawing substantial investments from retail investors. Previously, the expectation was that APs would predominantly be large market-making firms with expertise in the crypto space. However, BlackRock's modification opens the door for major banks to become integral participants, expanding the pool of liquidity providers.

Sui Chung, CEO of CF Benchmarks, a benchmarks administrator associated with existing spot bitcoin ETF applications, including BlackRock's, highlighted the potential impact of the SEC accepting this revised dual model. According to Chung, this approach could increase liquidity by involving more potential APs, especially leveraging the trillion-dollar-plus balance sheets of large American banks compared to trading firms focused on cryptocurrency.