James Seyffart Provides Clarity and Dispels Misconceptions Surrounding Bitcoin ETFs

The U.S. Securities and Exchange Commission (SEC) has recently sent out a notice to all applicants of spot Bitcoin Exchange-Traded Funds (ETFs), stating that their final prospectuses must focus exclusively on the “Cash Creates” model instead of the “in-kind” model. This directive has sparked widespread discussion and negative opinions about the preferred redemption model.

In the midst of these developments, a Twitter account claiming to be Satoshi Nakamoto, the enigmatic creator of Bitcoin, posted a memo stressing the importance of preserving the original programming integrity of Bitcoin. Despite this, some analysts speculate that the introduction of Bitcoin ETFs could signal the end of Bitcoin as we currently know it.

However, Bloomberg analyst James Seyffart has dismissed these speculations. In a recent Twitter post, he referred to certain individuals as “uninformed” and “gullible” for their misconceptions about the impact of ETFs on Bitcoin. Seyffart firmly asserts that “Spot Bitcoin ETFs WILL hold Bitcoin.” He reiterated his previous stance that spot Bitcoin ETFs, under the “Cash Creates” model, are not fractional reserve products and will indeed hold real Bitcoins.

To understand the difference between the “in-kind” and “Cash Creates” models, let’s examine the processes involved in each:

In the “in-kind” model, a Market Maker (MM) initiates the redemption process by contacting an Authorized Participant (AP). The ETF issuer approves the request, and the MM purchases ETF shares through a Listing Exchange. These shares are then transferred to a Transfer Agent, and the ETF issuer instructs the Bitcoin custodian to distribute the Bitcoin to the MM.

In the “Cash Creates” model, when the MM submits a redemption request, the ETF issuer instructs the Bitcoin custodian to withdraw cash from cold storage. The MM can then exchange Bitcoin for USD with the ETF issuer.

Major financial firms like WisdomTree and BlackRock have already adopted the cash-create model. Grayscale, which is seeking SEC approval, has included this model in their latest amendment filing, enabling the Trust to utilize cash for the cash-create model.

Tags: Bitcoin ETF