The path to the approval of a spot Bitcoin exchange-traded fund (ETF) seems to have taken an interesting turn. Bloomberg analyst Eric Balchunas recently reported that securities regulators are advising spot Bitcoin ETF applicants to handle funds in a specific way. This development indicates a potential shift in the regulatory approach and presents new challenges for ETF applicants.
Traditionally, in-kind creations have been the preferred method for participating firms or institutions to receive shares of an ETF. In the case of spot Bitcoin ETFs, this would involve delivering matching assets, such as Bitcoin, in exchange for shares. However, regulators are now suggesting a different approach. Balchunas reveals that securities regulators are encouraging cash creates instead of in-kind creations.
Potential Advantages of Cash Creates
The reasoning behind the preference for cash creates lies in the fact that broker-dealers cannot directly deal with Bitcoin. By opting for cash creates, issuers would take on the responsibility of transacting in Bitcoin, while brokers could avoid relying on unregistered subsidiaries and third-party firms. This shift could result in fewer limitations overall for spot Bitcoin ETFs.
Implications for ETF Applicants
The news of this regulatory guidance raises concerns for ETF applicants. Balchunas estimates that only a few of the current spot Bitcoin ETF applicants had initially planned to use cash creates. This means that the majority of firms may now need to revise their filings and adjust their strategies to incorporate this new requirement. Failure to adapt could result in delays in the approval process for these applicants.
Despite the challenges posed by this shift, Balchunas remains optimistic about the future of spot Bitcoin ETFs. He maintains his prediction that there is a 90% chance of a spot Bitcoin ETF approval by January. He views the regulatory guidance as a positive sign, indicating that the SEC has a clear path forward for the approval of these investment products. Balchunas’ confidence is encouraging for both ETF applicants and investors eagerly awaiting the launch of a spot Bitcoin ETF.
While Balchunas reported on this regulatory guidance, he did not disclose the source of the rumor. The Securities and Exchange Commission (SEC) has also provided limited details about its engagement with ETF applicants. However, it is worth noting that the SEC has been seeking input on various ETF applications since late September. This lends credibility to the possibility that cash creates may have been one of the ideas proposed during these discussions. The SEC’s focus on market manipulation and surveillance-sharing agreements further supports the notion that new approaches are being explored.
The recent guidance from securities regulators regarding the handling of funds for spot Bitcoin ETFs has opened up new possibilities and challenges for ETF applicants. The shift from in-kind to cash creates suggests a willingness on the part of regulators to adapt to the unique characteristics of the cryptocurrency market. While some firms may need to revise their filings, this development brings hope for the imminent approval of a spot Bitcoin ETF. As the SEC continues its evaluation process, investors eagerly await the opportunity to gain exposure to Bitcoin through regulated and accessible investment products.