Bitwise’s Update to XRP ETF Filing Gives More Details

In a new filing released today, Bitwise has updated its S-1 registration filed with the Securities and Exchange Commission on October 2 as part of its effort to launch an XRP exchange-traded fund. Bitwise was the first institution to file for such a product, followed by Canary Capital on October 9. 

In the context of ETF paperwork, the S-1 form is submitted by companies that intend to register securities for sale to the public in the US. The form provides detailed information about the ETF, including its structure, management, investment strategy, risks, and financial data. 

Today’s filing refines the details laid out in the first S-1 form submitted to the regulator on October 2. The updates to the document elaborate on the ETF’s structure, custody arrangements, and the mechanisms for the creation and redemption of shares. 

According to the newest S-1 form, XRP for the Bitwise ETF will be held under the custodianship of Coinbase Custody mainly in cold storage, with occasional transfers to hot wallets for the creation and redemption of baskets and paying Trust’s expenses. Coinbase Custody is a custodial service for institutional clients and an affiliate of Coinbase, Inc. 

The custody agreement between Bitwise and Coinbase also ensures that ETF’s XRP remains segregated from the custodian’s own funds to safeguard the Trust’s holdings against theft and unauthorized use of private keys.

As a Prime Execution Agent appointed by Bitwise, Coinbase will be responsible for XRP sales and purchases on behalf of the Trust across connected trading venues, which include its own exchange, Bitstamp, Kraken, LMAX, and four additional non-bank market makers that couldn’t be named due to confidentiality restrictions. The Prime Execution Agent will also have a role as a provider of short-term financing in the form of trade credits when the Trust needs to execute XRP trades but doesn’t have the necessary funds or XRP readily available.

Regarding the redemptions of XRP, these will be carried out only in large blocks called “Baskets,” each consisting of 10,000 shares to ensure efficient management of the Trust’s funds. Authorized Participants, who are typically large financial institutions, will be the only entities that can transact directly with the Bitwise ETF, bringing shares to the public market for retail trading.

In the updated filing, Bitwise recognized the risks stemming from the ongoing legal dispute between the SEC and XRP issuer Ripple over the status of the cryptocurrency. Since 2020, the regulator has maintained that XRP sales were unregistered security offerings. In 2023, Judge Torres ruled in the SEC v Ripple that secondary sales of XRP didn’t qualify as a security, a decision hailed as a major win for the retail XRP community. Both parties had since appealed parts of the ruling. 

Bitwise acknowledged that if XRP is classified as a security, the XRP ETF could be considered an unregistered investment company, which is likely to result in civil and criminal liability and would force the fund to liquidate its holdings. 

If either of the two current contenders, Bitwise or Canary Capital, wins approval from the SEC, this will be the first spot XRP ETF available for US investors. However, for OTC traders XRP exposure is already available through the Grayscale XRP Trust.