The Securities and Exchange Commission and popular investment companies like BlackRock and Fidelity are working on the details for a bitcoin investment product. This could mean that the agency is getting close to deciding if they will allow it.
Companies have talked with the government about how to trade bitcoin. The government is still deciding if they will allow it.
The people who work for BlackRock had a meeting with the agency on November. Fang talked about iShares Bitcoin Trust and proposed a new plan to make it easier for investors to trade their shares for bitcoin.
During an interview, Fang explained the different ways a spot bitcoin ETF could be set up, comparing them to a basket of eggs. The problem is deciding who has to sell bitcoin if it needs to be cashed out. Fang said that investors will always get money back when they sell their shares, no matter which type of shares they have.
Redeeming things instead of money model
The person said that asset managers know a lot about something called an “in-kind” redemption model. This is commonly used for ETFs that are based on stocks. In that plan, regular people who own shares can trade them with BlackRock for bitcoin. Then, they can change that bitcoin into money with a broker-dealer.
On the other hand, the SEC probably prefers a cash model. This means BlackRock would have to take the bitcoin out of storage, sell it, and give the money to the investor.
Fidelity seems to be leaning towards using in-kind redemptions, as mentioned in a memo about their recent meeting with the SEC.
“Fang said that asset managers know about a model that doesn’t have a lot of risk. ”
The models are different because BlackRock, or any other issuer, is willing to take on different levels of risk.
For instance, if a person has 100 eggs and other people want them all, they don’t want to take the risk of changing the eggs into something else, according to Fang.
Fang said, “If you want your egg back, I’ll give it to you. I don’t need to worry about how much it costs now. It could be $5 or $10, but I have your egg and you can have it when you want. ”
The updated version or new version
In the November meeting, BlackRock presented a new plan that would not force them to sell their bitcoin right away if people asked for their money back. It would also make it easier for them to manage their investments and avoid certain taxes. Fang explained it.
“Fang said the only difference is that in the cash model you have to sell bitcoin to get the cash. ” “In the new model, I’m giving you money instead of bitcoin. You don’t need to know how I got the money, but I’m giving it to you now. ” You let me handle the selling part.
Fang said the updated model might be good enough for the SEC. From the investor’s perspective, the cash model and the revised in-kind model are the same.
“Fang said they don’t want investors to be in a situation where they can’t sell their investments for cash. ”
BlackRock and Fidelity did not want to say anything. The SEC did not answer a request for a comment.