SEC Approaches Decision on Spot Bitcoin ETFs Amid Final Hurdle of Authorized Participant Clarity

SEC Approaches Decision on Spot Bitcoin ETFs Amid Final Hurdle of Authorized Participant Clarity

Crypto News – As the January deadline rapidly approaches, the Securities and Exchange Commission (SEC) faces a pivotal decision regarding the approval, rejection, or deferral of spot Bitcoin Exchange-Traded Funds (ETFs). A critical element in this process, as highlighted by Bloomberg Intelligence analyst Eric Balchunas, is the clarity on ‘authorized participants’ for each ETF contender.

Balchunas recently remarked on Twitter, “This is no easy last step, and may keep some from [the] starting gate,” emphasizing the complexity of this requirement. He posited that a combination of an authorized participant agreement and cash creation might pave the way for approval.

Authorized participants play a crucial role in the ETF ecosystem. These organizations, distinct from the issuers, are empowered to create and redeem ETF shares. Typically, large banks and financial institutions fulfill this function. The presence of multiple authorized participants generally enhances an ETF’s liquidity, allowing for the adjustment of share availability in response to market demands, thereby aligning the ETF share price more closely with the value of its underlying asset, Bitcoin in this case.

The industry has long sought the approval of a spot Bitcoin ETF for U.S. investors, a quest persisting for over a decade. However, the SEC has consistently expressed concerns over risks such as market manipulation and challenges in reliable price discovery.

In a recent webinar, Balchunas highlighted the SEC’s apprehension towards in-kind share creation, a method that would allow registered brokers to handle Bitcoin directly—a scenario the SEC intends to avoid. He noted that cash creation addresses this concern by limiting Bitcoin handling to the issuer alone.

The past two months have been marked by intensive discussions between regulators and potential issuers, including industry heavyweights like Grayscale, Valkyrie, and BlackRock. This level of engagement suggests a strong possibility that the SEC is working towards approving some applications.

Currently, there are over a dozen Bitcoin ETF applications under review by the SEC. The anticipation intensified when BlackRock entered the fray with its iShares Bitcoin Trust. BlackRock has since amended its S-1 filing three times, with the latest amendment specifying cash-only share creation and changing the fund’s ticker from IBTC to IBIT. Approval of the ETF, which would be listed on the Nasdaq, represents a significant milestone in the evolution of cryptocurrency investment vehicles.

In summary, as the SEC nears its decision on spot Bitcoin ETFs, the focus on defining authorized participants’ roles and the shift towards cash creation as a mechanism for share issuance emerge as pivotal factors in the potential approval of these innovative investment products.