Unchained Why the SEC May Want Cash Creation of Spot Bitcoin ETFs - Ep. 582
Dec 15, 2023
James Seyffart, a research analyst at Bloomberg Intelligence specializing in crypto assets and ETFs, discusses the excitement surrounding the anticipated approval of spot Bitcoin ETFs. He highlights the pivotal issue of cash versus in-kind creation models and their implications for the market. Seyffart predicts ETF listings soon and analyzes how an approval might impact major players like Grayscale. He also shares insights into the SEC's evolving stance on Ethereum, signaling a potential shift in regulatory perspectives for cryptocurrencies.
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ETF Creation and Redemption Models
- Spot Bitcoin ETFs can use in-kind or cash creation and redemption models.
- Cash creation, like mutual funds, involves taxable events when buying/selling Bitcoin at the issuer level.
Cost Implications of Cash Creation
- Cash creation and redemption in ETFs adds costs due to increased operational burden on the issuer.
- This can lead to slightly wider spreads compared to in-kind ETFs, impacting end investors minimally.
Risks of Cash Creation and SEC's Preference
- Cash creation increases risks for market makers due to constant conversion between USD and Bitcoin.
- The SEC prefers cash creation as it keeps everything under their jurisdiction, avoiding loopholes with brokers handling Bitcoin directly.