All signs point to a spot Bitcoin exchange-traded fund likely to launch in the U.S.
why this is important
The U.S. Securities and Exchange Commission (SEC) faces a January 10 deadline to approve Ark 21 Shares’ application. This is widely believed to be the final date for the SEC to approve or reject more than a dozen pending applications.
break it down
There are many signs that the bill will be approved in the near future - such as ongoing meetings between SEC staff, exchanges and potential issuers, and a series of documents.
On Wednesday afternoon, SEC staff met with representatives of markets looking to list the products, including the New York Stock Exchange, Nasdaq and Cboe Global Markets, a person familiar with the matter told CoinDesk.
Fox Business first reported the meeting was taking place, saying attorneys from the SEC's Division of Trading and Markets met with exchange representatives.
Over the past few weeks, SEC staff have also met with issuers to address various aspects of their S-1 filings, including having all issuers use a cash creation and redemption model rather than an in-kind model.
Cash creation is exactly what the name implies: Authorized participants will use cash to purchase ETF shares from the issuer, rather than purchasing the underlying assets directly.
Companies such as BlackRock and Grayscale have argued to the SEC that regulators should accept and allow physical creation. James Angell, an associate professor at Georgetown University, made a similar point in a letter to regulators that allowing only cash creation would ultimately increase fees and other frictions for all parties.
A person familiar with the issuer’s work told CoinDesk last month that the issuer has been meeting with the SEC to recommend to the regulator that cash and in-kind offerings be allowed.
"If you offer cash and physical, you have more market participants, tighter spreads on the ETF, tighter tracking of the underlying asset... and greater investor protection," the person said.
However, the person also noted that the SEC may not want to allow physical creation at this time due to the structure of existing rules, which could be for several reasons.
The SEC may need to update its rules on how broker-dealers handle custody trades before allowing physical trading, one of the possible reasons for its silence, this person said.
“I think many issuers feel that they don’t want the launch of a Bitcoin ETF to force the SEC to update the rules and regulations for broker-dealers dealing with Bitcoin,” they said. This is not an insurmountable problem – for example, the U.S. Securities and Exchange Commission Other intermediaries could be allowed to handle transactions of physical creation and redemption.
small steps
Also on Wednesday, Fidelity filed a Form 8-A that would allow the exchange to list the stock. While this form by itself does not mean that the product has been approved, it is a procedural step that must be taken once approval is obtained. A person at another potential issuer said their company would also have to file a Form 8-A.
The filing is required for the stock to begin trading, said James Seyffart, an analyst at Bloomberg Intelligence.
"There are two things that I'm looking at and others should be looking at if they're interested," Seifert said. "These ETFs require a 19b-4 approval order and they require a complete and valid prospectus, known as an S-1. Without these two things, the ETF cannot begin trading."
At the same time, we saw some revised documents regarding the cash creation model and naming authorized participants.
The T-REX Group (yes, really) appears to be riding the wave of excitement, filing for a number of inverse and long spot Bitcoin ETFs, presumably in anticipation of approval of the spot trust product. There is no conclusive evidence for any of these actions, but they all hint at possible approval.
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