U.S. SEC may approve first spot Bitcoin ETF, making history

Author: Eleanor Terrett, Charlie Gasparino FOXBusiness  Compiled by: Qin Jin Carbon Chain Value < /p>

Fox Business News has learned that large Wall Street money managers are increasingly confident that the U.S. Securities and Exchange Commission will approve the first "spot" Bitcoin exchange in early January. Trade funds and thus make cryptocurrency history.

Sources close to the companies said recent guidance from SEC officials is that the green light is likely to come on January 10, 2024 . This is also the deadline for the SEC to approve or reject the first company to apply for a spot Bitcoin ETF with the SEC – Cathie Wood’s Ark Investment Management’s application in partnership with 21Shares.

Currently, about a dozen companies, including Wall Street asset management giants such as BlackRock and Fidelity, have applied for spot Bitcoin ETFs are ETFs that are valued based on the real-time prices of digital assets.

People at these companies believe the SEC may approve several applications at the same time. A spokesman for the U.S. Securities and Exchange Commission declined to comment.

If approved as many expect, it would mark a major step toward the mainstreaming of cryptocurrencies in the United States, and Wall Street's No. 1 Police officer and Securities and Exchange Commission Chairman Gary Gensler had been reluctant to acknowledge this until a recent ruling by the U.S. Court of Appeals for the D.C. Circuit that curtailed his authority over cryptocurrency regulation.

(July 28, 2023, Washington, U.S. Securities and Exchange Commission Chairman Gary Gensler attended the Financial Stability Oversight Council at the U.S. Department of the Treasury Meeting. Kevin Dietsch)

A Bitcoin spot ETF will provide retail investors with greater exposure to the world's largest cryptocurrency at a lower cost than has already been approved of Bitcoin ETFs priced on the futures market. In addition, when trading on the New York Stock Exchange and Nasdaq stock markets, investors can purchase ETFs through highly regulated money management companies, thereby gaining access to Bitcoin investment opportunities and avoiding unregulated exchanges.

One ​​disadvantage for investors is that the U.S. Securities and Exchange Commission has unusual requirements for the structure of ETFs. In talks with large money managers, the SEC insisted that applicants use cash to purchase ETF shares and not the underlying asset, which in this case was Bitcoin.

Traditional ETFs allow for so-called "in-kind" trading - meaning market makers can exchange Bitcoin for ETF shares. The "cash creation" path means that ETF issuers must convert Bitcoin into cash on every transaction - a longer and more complex process that requires the issuer to purchase the Bitcoin themselves, rather than a broker.

Securities lawyers say another disadvantage of cash creation is that investors will lose an important tax benefit; "in-kind" purchases are not a taxable event, but Selling Bitcoin for cash before purchasing the ETF would be a taxable event.

Several spot Bitcoin ETF applicants such as Grayscale are hesitant to give up physical subscriptions. In a meeting with the U.S. Securities and Exchange Commission (SEC) on Tuesday, Grayscale told the agency that it believes it is in the best interest of investors to offer both physical and cash creation and redemption as it supports "a deeper, more robust level market, thereby forming a more efficient ETP market structure."

Dave Weisberger, co-CEO of CoinRoutes, said: "Cash Creation essentially takes the burden of Bitcoin trading away from professional traders. Companies move to authorized participants (APs) such as Morgan Stanley and Goldman Sachs. This means less competition among issuers and performance will depend on which issuer has better resources and trading strategies."

Weisberger said that the reason why the SEC insists on cash redemptions rather than physical redemptions is because the agency currently does not allow brokers such as Robinhood and Fidelity to conduct Bitcoin spot directly. trade.

It's unclear why the agency continues to prevent brokers from trading spot Bitcoin, but Weisberger believes it has a lot to do with political tensions surrounding the digital asset among members of Congress. Big relationship. One explanation given by those who have met with the SEC is that the agency is concerned that Bitcoin is being used for money laundering, market manipulation and other illegal purposes.

A former U.S. Securities and Exchange Commission (SEC) official attributed this to Gensler's general aversion to digital assets and his desire to "hold back" new crypto products. ”. Gensler is still not entirely clear on Bitcoin's actual status, whether it is a loosely regulated commodity or a security that requires the full oversight of the commission like stocks or bonds. The same goes for Ethereum, the second-ranked cryptocurrency. In the past, Gensler has said that most other cryptocurrencies are considered securities, although he has remained silent on this while serving as SEC chairman.

According to FOX Business, BlackRock, the world's largest fund management company with $9 trillion in assets under management, has obtained U.S. securities trading The committee approved its proposed Bitcoin ETF as an important priority for the company. BlackRock founder and CEO Larry Fink calls Bitcoin an "international asset" and "store of value," with a status comparable to gold.

BlackRock, which has more than 400 traditional ETFs on the market, has held five meetings with the SEC regarding its spot Bitcoin ETF application. , most recently on Tuesday. SEC staff has held about 24 meetings with various ETF candidates, signaling to the industry that the agency is redoubling its efforts to bring these ETFs to market in the new year.

Of course, it is possible that the SEC will reject all applications, but industry officials believe that possibility is low. The reason: In August, the Washington, D.C., appeals court reversed the SEC’s rejection of crypto asset manager Grayscale’s application to convert its GBTC trust into a spot Bitcoin ETF. The three-judge panel called the SEC's actions "arbitrary and capricious."

The ruling is seen as an important precedent that fund managers seeking spot Bitcoin ETFs will use if their applications are rejected by the SEC. as basis.