Critical Analysis of the U.S. SEC Meeting with Fidelity on Bitcoin ETF Application

Critical Analysis of the U.S. SEC Meeting with Fidelity on Bitcoin ETF Application

The U.S. Securities and Exchange Commission (SEC) recently held a meeting with Fidelity regarding the firm’s spot Bitcoin ETF application. This meeting, which took place on Dec. 7, involved members of the SEC’s Division of Corporate Finance, Fidelity representatives, and individuals from CboeBZX. The primary focus of the meeting was a proposed rule change that would permit CboeBZX to list and trade shares of Fidelity’s Wise Origin Bitcoin Trust.

Fidelity’s ETF model offers exposure to the cryptocurrency market using a unique structure that involves various industry players with distinct roles. Authorized participants and broker-dealers work alongside issuers and custodians to create and redeem ETF shares, thereby facilitating market flow. Meanwhile, unregistered crypto affiliates are responsible for holding and transferring the actual bitcoin tied to the ETF based on creation and redemption orders. This intermediary setup allows market participants to gain price exposure to Bitcoin without the need to directly handle the cryptocurrency.

Recent reports suggest that the discussions between the SEC and Bitcoin ETF applicants, including Fidelity, have progressed to advanced stages. These discussions mainly revolve around addressing “key technical details.” While the sources speaking to Reuters wished to remain anonymous, they expressed confidence that the SEC will likely approve the relevant ETF applications in the near future.

The SEC has been actively engaging in meetings with various spot Bitcoin ETF applicants in recent weeks. For instance, the agency also conducted a meeting with BlackRock, during which they compared cash and in-kind models. This comparison is crucial as it determines the method by which brokerages carry out Bitcoin transactions under existing U.S. regulations. While Bloomberg ETF analyst Erich Balchunas previously suggested a preference for cash models, Bloomberg ETF analyst James Seyffart’s more recent reports indicate that some proposals may allow for both cash and in-kind options.

Despite the uncertainties surrounding the approval of spot Bitcoin ETFs, both Balchunas and Seyffart estimate a 90% chance of approval by January 2024. This forecast is promising for investors hoping to gain easier access to the cryptocurrency market through regulated financial products.

The SEC’s recent meeting with Fidelity regarding its spot Bitcoin ETF application marks a significant step forward in the regulatory landscape for cryptocurrencies. The discussions held with other applicants, such as BlackRock, further demonstrate the SEC’s efforts to carefully review different models and weigh the potential benefits and challenges. While the outcome remains uncertain, the positive sentiment reflected in the aforementioned estimations instills hope for the future approval of spot Bitcoin ETFs. Such approval would open new doors for investors looking to participate in the growing cryptocurrency market while operating within established regulatory frameworks.

Regulation

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