Industry Executives Reflect on Final Obstacle for Bitcoin ETF Acceptance

With the SEC’s next Bitcoin ETF deadline approaching, a final obstacle must be cleared: Getting clarity on permitted participants.

The January deadline for the Securities and Exchange Commission to accept, reject, or delay its verdict regarding spot Bitcoin exchange-traded funds (ETFs) is quickly approaching. Amid all this, there is one final obstacle for issuers: Approved participants.

SEC Might Require Bitcoin ETF to Provide Approved Participants

 Eric Balchunas, an analyst, envisaged that every Bitcoin exchange-traded fund hopeful must have clear approved participant limits in its S-1 prior to consideration for approval. On X (formerly Twitter), he said this final step is complex and might restrict some to the starting date. Further, he theorized that ‘AP agreement and cash creates result in approval.’

The approved participant wrinkle seems to be another effort by the Securities and Exchange Commission to openly clarify who can and cannot take part in the generation and redemption of Bitcoin exchange-traded fund shares.

This also involved those who can directly handle Bitcoin. An authorized participant refers to an organization, besides the issuer themselves, that is permitted to generate and redeem an exchange-traded fund’s shares. Primarily, this role is implemented by major financial institutions and banks.

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The higher the number of approved participants for an exchange-traded fund, the higher the liquidity. In case there is a scarcity of shares on the market, approved participants can generate more.

When the market has an increased number of exchange-traded funds, authorized participants can minimize the number of available shares. In the two cases, the additional participants aid in maintaining an exchange-traded fund’s share price in accordance with its underlying asset, which is Bitcoin in this case.

SEC Expected to Provide Feedback of Spot Bitcoin ETFs

A spot Bitcoin exchange-traded fund is a product the industry has desired to sanction for United States investors for more than ten years. However, the Securities and Exchange Commission has been committed to claiming there were several risks to permit investors access to one. Reliable price discovery and market manipulation are examples of significant risks.

In a screenshot, Balchunas illustrated a table monitoring the Bitcoin ETF hopefuls’ status. 50% still permits the generation of shares with in-kind or cash. However, the analyst claimed the creation of in-kind shares is a non-starter for the Securities and Exchange Commission.

On an earlier webinar, he said the Securities and Exchange Commission was not ready to be comfortable enough with in-kind since it permits registered brokers to utilize Bitcoin, which is not allowed.

He also said they do not desire unregistered subsidiaries to have contact with Bitcoin. The creation of cash addresses that, meaning the issuer has contact with Bitcoin and nobody else.

Crypto Firms Meets With SEC to Discuss on Spot Bitcoin ETF

In the last two months, several phone calls and meetings between regulators and potential issuers, for instance, Valkyrie, BlackRock, and Grayscale have taken place.

Several speculators believe that at this point, it would be highly impossible for the Securities and Exchange Commission to dedicate itself to aiding applicants in tweaking their S-1 filings if it did not strive to ratify one of them finally.

Currently, the Securities and Exchange Commission has applications for several Bitcoin exchange-traded fund hopefuls. Despite the firms’ attempts to have one ratified since 2013, the expectation increased in June when BlackRock, a Wall Street giant, announced its intention to enter the race using its iShares Bitcoin Trust.

BlackRock’s S-1 filing has acquired three amendments since its filing, the most recent of which made it clear that the exchange-traded fund would permit the generation of shares using cash and changed the fund’s ticker from IBTC to IBIT. In case of approval, the exchange-traded fund is going to trade on Nasdaq.  

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