Bitcoin ETF: Is 2024 the Breakthrough Year?

• Spot Bitcoin ETF Trading in the U.S. May Kickstart Soon
• Significance of the Event
• Decoding the Likelihood of Approval
• Understanding Cash Creation
• Preliminary Steps

Spot Bitcoin ETF Trading in the U.S. May Kickstart Soon

A Spot Bitcoin$42,260 -0.64% Exchange-Traded Fund (ETF) could soon commence trading in the United States. The excitement surrounding a regulated financial product like a Spot Bitcoin ETF, which would allow both institutional and retail investors to gain exposure to Bitcoin's price without directly investing in the asset, continues to rise.

Significance of the Event

The U.S. Securities and Exchange Commission (SEC) has until January 10 to approve an application from Ark 21 Shares. This is seen as the final date by which the SEC may approve or reject the remaining applications.

Decoding the Likelihood of Approval

Signals toward a near future approval include ongoing interactions between SEC staff, exchanges, and potential issuers, as well as a barrage of filings. SEC personnel recently met with representatives from the markets-New York Stock Exchange, Nasdaq, and Cboe Global Markets-looking to list the products.

Over the past few weeks, SEC staff have also engaged with issuers to address various aspects of their S-1 filings, which includes all issuers using a cash creation and redemption model instead of in-kind.

Understanding Cash Creation

Cash creation implies that Authorized Participants (APs) will procure shares of the ETFs from issuers using cash rather than directly acquiring the underlying asset.

However, organizations like BlackRock and Grayscale have argued before the SEC in favor of in-kind creation. They believe the regulator should be comfortable with allowing both cash and in-kind creations.

In favor of in-kind creations, an individual familiar with an issuer's efforts argued, If you offer cash and in-kind, you have more market participants, tighter spreads on the ETF, closer tracking to the underlying assets, and greater investor protections. Yet, they acknowledged that the SEC might be hesitant to permit in-kind creations at this moment due to how existing rules are structured.

Preliminary Steps

Fidelity recently filed a form 8-A, which enables exchanges to list shares. Although this does not guarantee product approval, it is a procedural step that must be taken if approval is granted. Bloomberg Intelligence analyst, James Seyffart, clarified that SEC approvals heavily depend on 19b-4 and S-1 approvals.

Several amended filings addressing the cash creation model and naming authorized participants have been noted recently. Adding to this momentum, the T-REX Group filed for several inverse and long spot bitcoin ETFs, presumably in anticipation of a spot trust product approval. While these actions are not definitive, they hint towards a likely approval.

Edited by Jonathan Stoker