Arthur Hayes, the co-founder and former CEO of BitMEX, highlighted the potential “juicy arbitrage opportunities” that would emerge for investors who trade on both American and non-American crypto exchanges due to the SEC’s insistence that applicants handle funds in a specific way.

In a Dec. 21 post on X (formerly Twitter), Hayes explained that an ETF utilizing in-kind transactions would be a simpler and cleaner option, as it wouldn’t directly influence Bitcoin trades because the asset can be sourced from anywhere.

Usually, traditional ETFs facilitate “in-kind” transactions, permitting market makers to swap the underlying asset for the ETF shares directly. In contrast, the “cash create” method necessitates issuers to exchange cash for the ETF shares in each transaction.

However, he pointed out that a cash-based ETF poses complexities because “it hands big power to the fund.”

According to Hayes, this setup could lead to potential misuse of authority by the ETFs as there is the likelihood of politically connected brokers and exchanges being favored in the procurement of Bitcoin for the fund due to the prevailing “made in America” political sentiment.

He said:

“Cash is more complicated but it hands big power to the fund. The fund trading desk will have bigly power to direct what should be large trading flows of BTC. Given the ‘made in America’ political zeitgeist, you can bet only politically connected brokers and exchanges will be used as counterparties to buy and BTC for the fund.”

Reports revealed that the financial regulator prefers a cash-based system to prevent fraud and restrict broker-dealers like Robinhood and Fidelity from directly trading spot Bitcoin. This measure is to address concerns regarding potential market manipulation and illicit activities.

Meanwhile, several Bitcoin ETF applicants have been amending their applications to comply with the SEC’s demands of moving towards a cash-based approach over the past several months.