• U.S. SEC officials discuss spot bitcoin ETFs with companies like BlackRock and Grayscale, with a January 10, 2024, decision looming.

• The SEC sets a December 29 deadline for final proposal changes, potentially excluding those who miss it from early ETF approvals.

Recently, the U.S. Securities and Exchange Commission (SEC) held talks with representatives of seven companies—including well-known ones like Grayscale Investments and BlackRock—to assess the possibility of introducing exchange-traded funds (ETFs) linked to spot bitcoin in the early months of 2024. This development follows legal changes in the cryptocurrency industry and increased interest in spot Bitcoin ETFs. 

In these sessions, SEC representatives expressed their expectations by giving companies until December 29, 2023, to submit their final ETF proposals. Interestingly, the SEC has warned these businesses that missing this deadline could mean they won’t be allowed to participate in the first round of prospective approvals for spot Bitcoin ETFs, scheduled for early January 2024.

A joint proposal from ARK Investments and 21 Shares is one of the main points of debate in these talks. Market watchers and industry insiders are maintaining their optimism that, in the days leading up to the crucial deadline on January 10, 2024, the SEC will approve multiple ETF applications concurrently.

Rethinking Spot Bitcoin ETFs

The SEC may be changing its mind about spot Bitcoin ETFs based on its readiness to discuss with these companies. The SEC has historically hesitated to approve these ETFs due to worries about market manipulation. The only cryptocurrency ETFs the SEC had previously allowed were connected to futures contracts for Bitcoin and Ethereum on the Chicago Mercantile Exchange.

Recent events imply that authorities may reevaluate their position regarding spot bitcoin exchange-traded funds. Some credit an August ruling from a federal appeals court for this shift in strategy. This decision ruled that the SEC rejected Grayscale’s proposal to convert its trust into an ETF. The court ruling highlighted inconsistencies in the SEC’s approval process, particularly its approval of bitcoin futures ETFs while rejecting spot market ETFs.

Potential Approval in Early 2024

SEC officials participating in these meetings hinted at the possibility of approving in the first few business days of 2024. The approach would involve informing issuers directly of the “effective” date on which they can launch their ETFs, providing much-anticipated clarity to the market.

Companies like BlackRock and ARK have made technical adjustments to their ETF proposals to address regulatory concerns. Among these changes is the allowance of cash redemptions, a modification requested by regulators. Final updates to these proposals are expected to include comprehensive details about fees, which play a crucial role in investor decisions.

Another aspect that requires attention is the initial capital, often referred to as “seeding,” that issuers plan to provide for the ETFs. While these seeding amounts are expected to start relatively small, they will likely increase significantly once the ETFs commence trading. This infusion of capital aims to ensure the liquidity of the ETFs in their initial stages.

The legal aspect has also played a pivotal role in reshaping the prospects of spot bitcoin ETFs. Earlier this year, a federal judge ruled that the SEC must reevaluate its rejection of Grayscale’s proposal, emphasizing the need to maintain consistency and transparency in the approval process. While the SEC had approved Bitcoin futures ETFs in the past, the regulator faced challenges in justifying its disparate treatment of futures and spot market ETFs.

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