The State of Bitcoin ETF Applications: SEC Meetings and Outlook

The State of Bitcoin ETF Applications: SEC Meetings and Outlook

The U.S. Securities and Exchange Commission (SEC) recently held a meeting with Fidelity Investments to discuss the firm’s spot Bitcoin ETF application. This meeting, which took place on December 7, involved members from the SEC’s Division of Corporate Finance and representatives from Fidelity and CboeBZX. The main focus of the meeting was a proposed rule change that would allow CboeBZX to list and trade shares of Fidelity’s Wise Origin Bitcoin Trust.

Fidelity’s ETF model offers exposure to Bitcoin through a unique structure that involves various industry participants with specific roles. The interaction between authorized participants, broker-dealers, issuers, and custodians allows for the creation and redemption of ETF shares, facilitating market flow. Notably, unregistered crypto affiliates are responsible for holding and transferring the actual Bitcoin tied to the ETF, ensuring that market participants can gain price exposure without the need to directly handle cryptocurrency.

According to recent reports, discussions between the SEC and ETF applicants, including Fidelity, have progressed to advanced stages that primarily revolve around resolving key technical details. Unnamed sources have indicated that the SEC is likely to approve the relevant ETF applications in the near future. In fact, the SEC has been actively engaging in similar meetings with other spot Bitcoin ETF applicants, signaling a growing interest and potential willingness to embrace this investment avenue.

During its meeting with Fidelity, the SEC also compared cash and in-kind models for ETF transactions. Bloomberg ETF analyst Erich Balchunas suggested in November that cash models may be preferred over in-kind models due to potential difficulties in executing Bitcoin transactions within existing U.S. regulations. However, more recent reports from Bloomberg ETF analyst James Seyffart indicate that certain proposals may allow for both options. This flexibility could address concerns raised by market participants while maintaining regulatory compliance.

Both Balchunas and Seyffart have estimated a 90% chance of a spot Bitcoin ETF receiving approval by January 2024. This positive outlook signals growing confidence in the potential for Bitcoin ETFs to enter the market. As regulatory discussions progress and key technical details are resolved, it is becoming increasingly likely that the SEC will embrace Bitcoin ETFs as a viable investment vehicle.

The recent SEC meeting with Fidelity regarding its spot Bitcoin ETF application showcases the increased dialogue and progress being made in the regulatory landscape. The unique ETF structure proposed by Fidelity, along with discussions on key technical details and the comparison of cash and in-kind models, highlight the industry’s efforts to navigate regulatory challenges. With a positive outlook for approval and the potential for market entry by January 2024, it is clear that Bitcoin ETFs are gaining momentum and could serve as a significant development in the cryptocurrency investment space.

Regulation

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