Bitcoin Spot ETF Update: Seeking Cash Mode Approval Before Pursuing Physical Mode?
As the Christmas holiday approaches, various asset management companies have submitted amendments for Bitcoin spot ETFs, hoping to be included in the first batch of approved lists. Bloomberg ETF analyst James Seyffart stated that Valkyrie, Bitwise, and Invesco have all proposed amendments that would allow for creation and redemption only in cash. Although another analyst, Eric Balchunas, pointed out that the cash mode would reduce the efficiency of the ETF, the question remains whether people prioritize “having it first” or “having it better.”
Why does the SEC prefer the cash mode?
The cash mode is disadvantageous for GBTC and will force the sale of Bitcoin.
Valkyrie, Bitwise, and Invesco first submitted cash mode proposals.
Prioritizing “having it first” or “having it better”?
Bloomberg ETF analyst Eric Balchunas explicitly pointed out that the cash mode preferred by the SEC means that only the ETF issuer handles BTC, not intermediaries (registered brokers cannot). They may also be unwilling to allow subsidiaries of unregistered broker-dealers to handle it (because they are not registered).
Balchunas pointed out that the superpower of an ETF comes from the tax efficiency of physical creation and redemption. If the ETF is forced to use only the cash mode, the fund can only buy and sell assets (Bitcoin in this case) and then generate capital gains/losses.
If GBTC can only use the cash mode, they will be forced to sell Bitcoin. According to Balchunas’ estimation, GBTC holds 620,000 Bitcoins with an average cost of $11,625.
According to a post by Bloomberg ETF analyst James Seyffart, Valkyrie has also submitted a new S-1 form, similar to Bitwise and Invesco. They declare that creation and redemption can only be done in cash, but like Invesco, they specifically state that they hope to use the physical mode in the future if/when allowed.
Since the cash mode has tax disadvantages, a cash-based Bitcoin ETF is not ideal and disrupts a major advantage of the ETF structure. But it’s better than nothing, and Bloomberg analysts hope to eventually resolve this issue in a physical manner.
Eric Balchunas
James Seyffart
Bitcoin spot ETF
Cash mode
