The SEC continues meeting with bitcoin ETF hopefuls. Here’s what they’re discussing

The SEC continues meeting with bitcoin ETF hopefuls. Here’s what they’re discussing:

The US Securities and Exchange Commission (SEC) has been actively engaging with various fund issuers to discuss the potential launch of spot bitcoin ETFs, according to recent reports. These discussions have focused on the operational aspects of such funds.

Valkyrie Chief Investment Officer Steven McClurg indicated on a recent podcast that his company is addressing structural issues with the SEC, with a specific focus on the process of creating and redeeming ETF shares. McClurg expressed optimism, stating that he believes they are “getting very close” to a resolution.

Financial giant BlackRock, which manages approximately $9 trillion in assets, met with the SEC on Monday to discuss the company’s proposed iShares Bitcoin Trust, according to a filing.

In addition, the SEC has met with other key players in the industry, including Fidelity, Grayscale Investments, and Franklin Templeton. Both the Division of Trading & Markets and the Division of Corporate Finance were present at these meetings, indicating the significance of these discussions.

Some industry experts believe that spot bitcoin ETF approval could come as early as January 10, while others caution that no issuers can be certain of the outcome.

The SEC has been addressing a number of topics with these firms, including the difference between in-kind and cash creation and redemption models. The handling of creations and redemptions remains a key issue, with ongoing discussions around the in-kind model.

Ultimately, it is believed that the SEC is more likely to approve the cash creations and redemptions workflow initially, as there are regulatory restrictions and limited market makers able to transact in bitcoin.

The approval of spot bitcoin funds and their investors would benefit from an in-kind model, as trading costs would be borne by market makers or authorized participants. However, it is possible that the SEC may initially approve these funds as cash create and redeem-only while continuing to work on the mechanics of in-kind.

The SEC declined to comment on these reports.

Historically, the SEC has been cautious in its approach to approving bitcoin ETFs, citing concerns about market manipulation and lack of regulatory oversight. Despite the growing interest in cryptocurrency investments, the SEC has taken a deliberate and thorough approach to evaluating the potential risks and benefits of these investment products.

As the industry continues to evolve, the SEC’s ongoing discussions with fund issuers indicate a growing recognition of the potential for regulated bitcoin ETFs in the market. This suggests that the SEC is carefully considering the operational and structural aspects of these funds in order to ensure the protection of investors and the integrity of the capital markets.