The US Securities and Exchange Commission (SEC) is likely to approve a Bitcoin spot ETF in the near future, according to knowledgeable sources. The SEC has reportedly requested all applicants to use a cash creation/redemption model and to remove any references to physical redemption in their documents.
Background:
BlackRock succumbs to SEC, adopts “cash redemption” and updates Bitcoin spot ETF code IBIT
Galaxy Digital predicts the approval of a Bitcoin spot ETF by the SEC before January 10, 2024, due to the Grayscale lawsuit settlement.
The SEC is currently reviewing over 10 Bitcoin spot ETF applications, including those from Grayscale, BlackRock, Fidelity, and other asset management giants, who are seeking to convert their Bitcoin trust funds, such as GBTC, into Bitcoin spot ETFs.
Several analysts predict that the first Bitcoin spot ETF will be approved in mid-January next year, and today there are important signs indicating that the SEC is likely to give the green light. According to FOXBusiness reporters Charles Gasparino and Eleanor Terrett, they posted a tweet at around 4 a.m. today (22nd) stating:
Shortly after, Bloomberg analyst Eric Balchunas also responded to the event. However, he stated that this was not a large conference call between the SEC and all Bitcoin spot ETF issuers, but rather multiple meetings with exchanges/issuers, requesting them to choose cash creation or wait. Nevertheless, this is a positive sign.
Eric has previously mentioned the SEC’s insistence on the cash creation model for Bitcoin spot ETFs:
Cash Creation/Redemption vs. Physical Creation/Redemption
In the cash purchase mode, authorized participants (APs) create or redeem shares of Bitcoin spot ETFs using cash. This means that APs provide cash to the ETF fund, and the fund manager uses this cash to purchase Bitcoin.
The impact of this model is that it may increase costs and tax complexity related to cash flow. Due to the involvement of cash transactions, there may be capital gains tax issues. In addition, cash redemption may affect the tracking accuracy between the ETF and the actual market price of Bitcoin.
In the physical purchase mode, APs create or redeem shares of Bitcoin spot ETFs using actual Bitcoin. This means that APs directly deliver Bitcoin to the ETF in exchange for newly created ETF shares, or exchange ETF shares for the corresponding amount of Bitcoin during redemption.
The impact of this model is that it avoids tax issues arising from cash transactions and better maintains consistency between ETF assets and the Bitcoin market price.
Diagram of cash purchase mode. Image source: Blackrock
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Tags:
SEC
Physical Redemption
Bitcoin
Bitcoin Spot ETF
Cash Creation