Goldman Sachs to Play a Role in Bitcoin ETF SEC Approval

• Deepak
• September 13, 2024

Reports claim that Goldman Sachs is in talks to play a role as an “authorized participant” for Blackrocks and Grayscale’s Bitcoin ETF, pending approval from the SEC.  Insiders familiar with the process claim that Goldman Sachs will probably win its bid for being “an AP,” which is a role that includes creating and redeeming ETF shares.

The Securities and Exchange Commission is expected to announce its decision on the Bitcoin ETF spot by the 10th of January.  At this point, the only crypto ETFs approved have been tied to futures contracts on Bitcoin and Ethereum.

What are ETFs?

ETF stands for exchange-traded funds, and it’s a pooled investment security that works similarly to a mutual fund.  Typically, the ETF will follow a specific index, sector, or commodity.  They differ from mutual funds since they are bought and sold on the stock market.

In recent months, some of the largest cryptocurrency companies have asked the SEC for approval to create their own ETFs. This is a way for traditional investors to get in on the crypto adoption hype without buying crypto directly.

What is an Authorized Participant?

An authorized participant is someone with significant buying power since it is the authorized participant’s job to acquire all of the securities an ETF wants to hold.  For instance, if an ETF is designed to track the S&P 500 Index, the authorized participant needs to buy shares in all the S&P 500 companies in the same weights as the Index and then deliver those individual shares to the ETF provider.

In exchange, the ETF providers authorize the AP to use the so-called “creation unit” – a block of equally-valued bundled ETF shares.

What Asset Management Companies are bidding?

Cryptocurrency resources such as CCN are reporting that as many as 14 different asset management companies are bidding for an AP spot for the Bitcoin ETF.  

BlackRock Asset Management, VanEck, Valkyrie Investments, Bitwise Investment Advisers, Invesco Ltd. Fidelity, WisdomTree Investments, and a joint venture between Ark Investments and 21Shares had all applied.

Some companies involved were also upfront about the fees they would levy for managing ETF assets.  It ranges from 0.3 to 0.8 percent, depending on who the AP will be.  Invesco also stated that it would waive the fee for the first six months or 5 billion.

More Names Coming Soon

More companies will soon emerge, as there’s still time to apply with the SEC.  It’s been said that Bitcoin ETFs will have between five and ten APs.  There’s a great interest in ETFs issued by cryptocurrency companies, especially among the traditional and well-established players in the world of finance.

However, the industry’s most prominent names have already applied, so chances are there won’t be any more big surprises.  The very top of the financial sector and asset management world is moving to cryptocurrency investments, as it’s become widely adopted and common.

The Changing Landscape

The introduction of ETFs and the involvement of some of the largest names in finance prove that the cryptocurrency landscape is changing.  The days when cryptocurrencies were a novelty for the small base of tech-savvy users are long gone.  Crypto is now widely accepted as a digital asset and a form of payment, and the push to bring it to the stock market is just a part of it.

Other traditional financial institutions, such as banks and pension funds, are also interested in crypto, which shows that even those who are always conservative about the market find value in crypto.

Grayscale

Goldman Sachs is one of the world’s largest investment firms, and it’s looking for partners from the cryptocurrency industry to venture into the world of crypto ETFs. Grayscale Investments is the best partner choice, as it’s the largest digital currency asset management company.

Grayscale was founded in 2013, and it manages digital assets worth over $50 billion.  In 2022, it took the SEC to court and won the right to create cryptocurrency ETFs, which opened up the opportunity for this novel approach to investing for the industry.

BlackRock

It’s been reported Goldman Sachs is in talks with BlackRock about the AP spot.  It’s also indicative of the interest the largest companies in the investment world are showing for crypto and the opportunities that may stem from trading ETFs related to crypto.

BlackRock is one of the world’s largest investment firms, with a market value of over $167 billion.  The company was in talks with Ethereum, the second-largest cryptocurrency out there, to support their bid for ETF approval.  Chances are that the largest cryptocurrencies – Bitcoin, Ethereum, Solana, and a few others will be the first to have ETFs approved, as well as the support of traditional financial institutions. Other altcoins will follow suit, as it’s the new frontier for the industry.

SEC Concerns

Over the years, cryptocurrencies have tried to get in on the stock market a few times.  Many countries and traditional financial institutions have regulations prohibiting investors from getting into crypto, and ETFs were a way to get around it.

SEC has stated several concerns as its reasons for declining the cryptocurrency creators.  It includes the possibility of market manipulation and the inability of potential coin issuers to protect future investors.  These concerns still exist, but the industry is now more widely accepted than ever before.

How’s Bitcoin Doing?

It’s been an especially lucrative year for Bitcoin, and the ETF move is just a final piece of that puzzle.  The price of Bitcoin was almost doubled in 2023, reaching as much as $42.000.  Many experts claim that the venture into traditional stock market investments via ETFs is part of the reason why.

The same goes for other prominent cryptocurrencies such as Solana or Ethereum.  Smaller altcoins also had a good year but with more fluctuation.  The move towards creating ETFs is good for the whole industry since it makes cryptos more respectable and more closely regulated by traditional financial and governmental institutions.

More Regulations

The inclusion of cryptocurrencies in the world of traditional finance and stock market trading also comes with additional regulations.  This starts with the SEC, which needs to approve the ETFs, but it goes further than that.  Soon, cryptocurrencies will be more closely regulated and will resemble traditional currencies.

These are good news for some users and investors as they provide more security and new investment opportunities.  For others, however, it shows that the industry has changed and that it’s no longer as free and unregulated as it was at first.  For many early adopters, that was the main appeal of crypto.

To Sum Up

Goldman Sachs is in talks to play a role as an “authorized participant” for Blackrocks and Grayscale’s Bitcoin ETF.  The investment giant has joined other high-end investment funds in their attempt to get in on the transformation of cryptocurrencies into publicly traded companies.  It’s still up to the SEC to approve the move.

The introduction of ETFs allows traditional financial investors to invest in cryptocurrency companies without buying crypto coins directly.  It’s part of a larger trend of adoption that cryptocurrencies are experiencing. This will make the crypto world more lucrative but also more regulated and, therefore, more constrained than it was at first.