James Seyffart’s Take on Bitcoin ETFs: Debunking Myths and Clarifying Facts

The U.S. Securities and Exchange Commission (SEC) has recently notified all spot Bitcoin Exchange-Traded Funds (ETFs) applicants. This notification emphasizes that their final prospectuses must exclusively focus on the “Cash Creates” model rather than the “in-kind” model. This directive has led to widespread discussion and negative perceptions regarding the preferred redemption model.

Alleged Satoshi Memo and Analysts’ Reactions

Amidst these developments, a Twitter account claiming to be Satoshi Nakamoto, Bitcoin’s enigmatic creator, posted a memo emphasizing preserving Bitcoin’s original programming integrity. Despite this, some analysts speculate that the release of Bitcoin ETFs could mark the end of Bitcoin as we know it.

However, Bloomberg analyst James Seyffart has dispelled these speculations. In a recent Twitter post, he referred to specific individuals as ‘uninformed’ and ‘gullible’ for their misconceptions about the impact of ETFs on Bitcoin. Seyffart strongly 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 actual Bitcoins.

Understanding the Two Models: In-Kind vs. Cash Creates

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

1. In-Kind Model:
   • A Market Maker (MM) contacts an Authorized Participant (AP) to start the redemption process.
   • The ETF issuer approves the request.
   • The MM buys ETF shares through a Listing Exchange.
   • The MM transfers these shares to a Transfer Agent.
   • The ETF issuer then instructs the Bitcoin custodian to distribute the Bitcoin to the MM.
2. Cash Creates Model:
   • Upon receiving a redemption request from the MM, the ETF issuer instructs the Bitcoin custodian to remove cash from cold storage.
   • The MM can then exchange Bitcoin for USD with the ETF issuer.

Adoption of the Cash Creates Model by Major Firms

Major financial firms like WisdomTree and BlackRock have already implemented the cash-create model. Grayscale, aiming for SEC approval, has included this model in their latest amendment file, allowing the Trust to use cash for the cash-create model.