Bloomberg Analyst Corrects Crucial Spot Bitcoin ETF Misconception

Godfrey Benjamin
December 28, 2023
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Breaking: Susquehanna International Holds $1.3B in 10 Bitcoin ETFs, $1B in GBTC

The choice of a “cash create” redemption model for spot Bitcoin (BTC) ETF as mandated by the United States Securities and Exchange Commission (SEC), has birthed some misconceptions in the industry, prompting Bloomberg’s Senior ETF Analyst James Seyffart to take out time to correct a few of these errors on the X app.

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Debunking Key Bitcoin ETF Myths

With many of the applicants for the Bitcoin ETF product now succumbing to the SEC’s Cash Creates demand, it looks like members of the public believe adopting this redemption model means the fund will not hold Bitcoin. 

Some others perceive that the Bitcoin ETF product will act as a fractional reserve product upon approval. However, Seyffart emphasized clearly that “Spot Bitcoin ETFs WILL hold Bitcoin.” 

In response to this clarification, some crypto X members had several questions to ask including one individual who wanted to know if the ETF issuers will publish on-chain addresses so that the public can check and verify how the cash-create model works. 

To answer this, Seyffart pointed to the fact that Osprey Funds published addresses for its OBTC offering. At the same time, he explained that this was not a strategy adopted by many ETF issuers. 

Another X user was more particular about getting a book that concisely explains how the entire Bitcoin ETF concept works, a demand Seyffart hilariously laughed at.

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Cash Creates and In-Kind Model: the Difference

On the subject of cash create redemption and its counterpart; in-kind model, BlackRock had earlier explained the difference in a document presented during one of its meetings with SEC. The in-kind model is completed in only a 5 step process that starts with a Market Marker (MM) requesting redemption through an Authorized Participant (AP).

The ETF issuer then approves the order while the MM buys the ETF shares via a Listing Exchange. Consequently, the ETF share is delivered to a Transfer Agent by the MM. Noteworthy, this will happen after the ETF issuer has instructed the Bitcoin custodian to release the coin to the MM.

For the cash model, the ETF issuer has to first instruct the BTC custodian to move cash out of cold storage for it to be sold after the redemption has been initiated by the MM. It is after this that MM can enter a trade with the ETF issuer to buy BTC for USD.

So far, BlackRock and WisdomTree have adopted the cash-create model. Grayscale also added it to its recent amendment filing, citing that “the Trust is currently able to accept Cash Orders,” a concession that is seen as a positive shift in hopes of bagging an approval. 

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Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
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Why Trust CoinGape

CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights Read more…to our readers. Our journal analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.

About Author
About Author
Benjamin Godfrey is a blockchain enthusiast and journalists who relish writing about the real life applications of blockchain technology and innovations to drive general acceptance and worldwide integration of the emerging technology. His desires to educate people about cryptocurrencies inspires his contributions to renowned blockchain based media and sites. Benjamin Godfrey is a lover of sports and agriculture. Follow him on X, Linkedin
Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
Ad Disclosure: This site may feature sponsored content and affiliate links. All advertisements are clearly labeled, and ad partners have no influence over our editorial content.