ARK Challenges SEC with New Bitcoin Spot ETF Filing in Cash

In a bold move, Cathie Wood-led ARK Invest has submitted an updated application for its highly anticipated spot Bitcoin exchange-traded fund (ETF). This fearless move comes on the heels of recommendations from the United States Securities and Exchange Commission (SEC), which advised Bitcoin ETF issuers to opt for cash creations rather than in-kind creations.

The universe of ETFs is dynamic, with the ability to create or redeem shares to balance supply and demand. They can operate in two ways: through in-kind creations, which involve the direct exchange of Bitcoin for ETF shares, or through monetary transactions to buy and sell Bitcoin on the market.

Recently, Bloomberg ETF analyst Eric Balchunas announced on Twitter that ARK has submitted the third amendment to its S-1 filing. The company appears to be maintaining the strategy of in-kind creations and redemptions, ignoring the suggestion of the SEC, which, the previous week, advised issuers to switch to cash creations, due to concerns about potential manipulations and fraud in in-kind creations.

ARK has just updated its S-1 again, amendment #3. Semi-shocker to be honest but in a good way. The more updates to these documents the better, shows them getting this bad boys in shape for SEC approval. pic.twitter.com/96GLGsFupS

— Eric Balchunas (@EricBalchunas) November 20, 2023

The SEC, specifically its Trading and Markets Division, has expressed concerns about in-kind creations, which allow authorized participants to exchange Bitcoin directly for ETF shares. These concerns are linked to the possibility of manipulation and fraud.

ARK Invest, however, appears firm in its decision to pursue the in-kind model, a choice likely motivated by the significant tax advantages for investors. In-kind creations offer the possibility of deferring capital gains, reducing taxable distributions and taking advantage of tax losses.

“Some issuers will try to react and ‘sell’ the SEC in kind, given the obvious benefits to investors,” Balchunas mentioned in one of his tweets.

ARK’s Spot Bitcoin ETF, proposed to be listed under the ticker ARKB, also drew attention for its proposed expense ratio of 0.80%, positioning it as the first issuer to disclose such fees for a Bitcoin ETF.

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