Industry insiders reveal that discussions between the U.S. Securities and Exchange Commission (SEC) and leading asset managers aiming to introduce Bitcoin Exchange-Traded Funds (ETFs) have progressed to pivotal technical details.
These developments hint at a potential green light from the agency for these long-awaited products, according to industry executives closely familiar with the matter.
Thirteen major firms, including Grayscale Investments, BlackRock, Invesco, and ARK Investments, have filed applications with the SEC for ETFs tracking the price of Bitcoin.
Advocates argue that an SEC-regulated product tied to the cryptocurrency’s spot price presents investors with a secure and accessible avenue to invest in Bitcoin. However, the agency has historically rebuffed such products, citing concerns about inadequate investor safeguards.
The tide shifted after a court ruling in August found the SEC at fault for rejecting Grayscale’s bid to convert its Bitcoin trust into an ETF. Since then, the SEC has delved into substantive discussions with issuers, diving into technical nuances typically addressed toward the end of the ETF application process. These discussions encompass crucial aspects such as custody arrangements, creation and redemption mechanisms, and investor risk disclosures, shared industry sources seeking anonymity due to the confidential nature of the talks.
The potential introduction of a spot Bitcoin ETF holds immense significance, as it would grant cautious investors access to the world’s largest cryptocurrency through the tightly regulated stock market. Anticipated demand for such products could surge to as high as $3 billion in the initial days. However, the SEC has consistently expressed apprehension regarding Bitcoin’s susceptibility to market manipulation, a focal point in previous discussions that primarily served as educational sessions, according to insiders.
According to Reuters, the SEC faces a deadline of January 10 to reach a final decision on ARK’s application, the first in the queue. Encouragingly, the in-depth nature of ongoing discussions signals a probable approval for ARK’s application and potentially some of the other 12 applications in the coming year, as disclosed by individuals familiar with the matter. This progress aligns with the recent surge in Bitcoin prices, reaching a 20-month high this month.
Cathie Wood, CEO of ARK Investments, highlighted a change in the nature of discussions with the SEC, raising optimism for the approval of multiple ETF applications. Bryan Armour, an ETF analyst at Morningstar, echoed this sentiment, suggesting that simultaneous approvals would allow investors the best opportunity for comparison.
Nonetheless, uncertainties persist, notably concerning settlement mechanisms and whether issuers will adopt cash or “in-kind” settlements, a key sticking point yet to be resolved, according to insiders.
Gensler, known for his cautious stance on crypto, has not provided a public indication of the SEC’s approval timeline, maintaining a neutral stance in public statements.