SEC demands ‘cash creates or you will wait’ as Valkyrie submits fourth spot BTC ETF amendment

• Valkyrie has agreed to SEC demand for BTC ETFs to do cash creates but holds out hope for in-kind approval.
• The firm joins BlackRock, Fidelity Investments, Ark Invest and Invesco in the spot Bitcoin ETF industry.
• Reportedly, the SEC is determined to only approve cash create ETFs.

The US Securities & Exchange Commission (SEC) has been meeting with institutions that have applied for spot Bitcoin exchange-traded fund (ETFs) approval. The regulator has one main agenda beside revamping the applications – to let the ETF do cash creates (cash redemptions) as opposed to in-kind creates (crypto redemptions).  

Also Read: SEC allegedly wants spot Bitcoin ETFs to do cash creates, not crypto, after rumored meet-up with exchanges

SEC likely insisting on cash creates

SEC may be determined on only approving cash create ETFs. Institutions that refuse to comply will likely have to wait longer for approvals. A Bloomberg Intelligence ETF specialist, Eric Balchunas, alleges these strictures in a recent post.

The statement comes after Valkyrie filed the fourth amendment to its spot BTC ETF application, indicating that it will also be doing cash creates, if approved. Based on the update, the firm holds out hope for in-kind creates down the road, with an excerpt from the filing noting, “[s]ubject to in-kind regulatory approval.”

Valkyrie’s spot ETF amendment

The move shows that Valkyrie prioritizes getting an ETF approved, even if it is in the ideal conditions.

With this decision, Valkyrie joins BlackRock, Fidelity Investments, Ark Invest and Invesco who already capitulated to the SEC’s preference for cash redemptions. Balchunas also noted in a recent post of chatter that the financial regulator may be deadset on letting cash create ETFs out in the first batch of approvals.

Responses to the developments on X show an inclination to submission, that the institutions should go along with the SEC’s cash creates preference for as long as it gets the product approved.  

The impatience is understandable, considering the drag that has already been witnessed in the market, invigorated by a series of delay orders and resubmissions. Elliot Johnson, CIO and COO of Canada’s Evolve ETFs, has also encouraged embracing cash redemptions, adding that they “could change it later” after approvals come in.

Evolve ETFs is an asset management firm that provides Canadian investors with access to innovative investment solutions.

Difference between cash creates and in-kind creates

The SEC is reportedly pushing for cash creates, proposing that broker-dealers cannot deal in Bitcoin, unlike exchanges. However, if the ETFs do cash creates, the broker dealers or institutional players applying for spot BTC ETF approvals would take the initiative to transact in BTC.

Such a turn of events would reduce limitations for everyone by keeping the institutional players from using unregistered subsidiaries or third-party firms to deal with the BTC.

With five already agreeing to do cash creates, it leaves eight that continue to contend against the proposition. Nevertheless, the 90% odds that Balchunas and colleague James Seyffart gave for approvals of the spot BTC ETF between January 5 and 10 remain.