Firms Addresses SEC’s Core Concerns in Pursuit of Spot Bitcoin ETF Approval

Firms Address SEC’s Core Concerns in Pursuit of Spot Bitcoin ETF Approval

UTC by Benjamin Godfrey · 3 min read
Firms Address SEC’s Core Concerns in Pursuit of Spot Bitcoin ETF Approval
Photo: Depositphotos

Recent meetings of major exchanges, including NYSE, Nasdaq Composite, the Chicago Board Options Exchange, and the SEC have sparked speculation about the timing and potential approval of a spot Bitcoin ETF.

In recent weeks, firms eagerly seeking approval for a spot Bitcoin (BTC) Exchange-Traded Fund (ETF) have been diligently addressing concerns raised by the US Securities and Exchange Commission (SEC), according to sources familiar with the matter.

Addressing SEC Feedbacks

The sources indicate that firms have engaged in a series of meetings with the SEC to address specific concerns. One of the primary areas of discussion has been the redemption model for these ETFs.

Traditionally, ETFs follow either an “in-kind” or cash redemption model. The former allows investors to exchange shares for the underlying securities or commodities without triggering tax penalties. However, the SEC has reportedly been urging ETF issuers, including industry giants like Grayscale Investments and BlackRock Inc (NYSE: BLK), to adopt a cash redemption model.

Grayscale, initially advocating for an in-kind redemption model, eventually yielded to the SEC’s preference. In a meeting held before the Christmas holiday, Grayscale proposed offering both in-kind and cash creates redemption models. However, the SEC insisted on a cash model, leading Grayscale to amend its S-3 form on December 26, signaling its acceptance of the cash model.

Furthermore, the SEC has asked issuers to disclose authorized participants, a step not traditionally taken in the industry. BlackRock, among others, has complied, naming broker-dealers like Jane Street Capital and JPMorgan Securities LLC as authorized participants.

Another major issue raised in recent discussions is the issue of hard forks in blockchain technology. When a blockchain undergoes code modifications, resulting in the emergence of a new version, it triggers a fork.

Industry players have reportedly reached a consensus on protocols to handle potential hard forks. In the event of a fork diverting from the main chain, trusts associated with the ETFs are expected to relinquish any entitlements.

Additionally, firms have clarified their positions on receiving tokens through hard forks or airdrops. Grayscale, in an amendment to its S-3 form, explicitly stated that its spot bitcoin ETF, if approved, would not receive any tokens through these processes.

Meetings with SEC Over Bitcoin ETF and Market Speculation

Recent meetings of major exchanges, including NYSE, Nasdaq Composite, the Chicago Board Options Exchange, and the SEC have sparked speculation about the timing and potential approval of a spot Bitcoin ETF. However, sources emphasize that these meetings don’t indicate a guaranteed approval, and the SEC’s stance remains uncertain.

However, the approval of futures-based Bitcoin ETFs has influenced the narrative surrounding spot ETFs. The SEC’s acceptance of futures-based ETFs has provided a legal basis for firms to pursue spot funds, having successfully addressed concerns related to price manipulation.

As firms actively engage with the SEC to address concerns and refine their proposals, the pursuit of a spot Bitcoin ETF remains a dynamic and evolving process. The industry’s responsiveness to regulatory feedback and the willingness to adapt to SEC preferences highlights the maturation of the crypto market.

Funds & ETFs, Market News, News
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