December 8, 2023

Reuters Reports Progress in Talks Between SEC and Asset Managers on Potential Approval of Bitcoin ETFs

Recent discussions between the US Securities and Exchange Commission (SEC) and prominent asset managers suggest a positive shift in the agency's stance on approving bitcoin exchange-traded funds (ETFs).

The SEC is currently reviewing applications from thirteen firms, including major players like Grayscale Investments, BlackRock, Invesco, and ARK Investments, seeking approval for bitcoin ETFs. Historically, the SEC has been cautious, emphasizing concerns related to investor protection.

However, a notable change in the SEC's approach followed a court ruling in August, which deemed the SEC wrong in rejecting Grayscale's spot ETF application. Industry executives and SEC public memos indicate that the SEC is now delving into substantive details with issuers, a departure from its usual practice toward the end of the ETF application process.

According to Reuters, discussions between the US securities regulator and asset managers have progressed to key technical details, signaling a potential approval in the near future. These discussions cover areas such as custody arrangements, creation and redemption mechanisms, and investor risk disclosures.

An anonymous source involved in the talks revealed that the SEC's focus on bitcoin manipulation concerns has shifted from educational discussions to addressing these concerns comprehensively. The advanced nature of the talks suggests potential approval of ARK's application and possibly some of the other 12 applications in the coming year.

Cathie Wood, CEO of ARK, expressed optimism in a recent Yahoo Finance interview, suggesting that multiple ETFs could be approved simultaneously, providing investors with the best opportunity to compare them. This sentiment aligns with Bryan Armour, an ETF analyst at Morningstar.

SEC public memos disclose meetings between executives from BlackRock, Grayscale, Invesco, and 21 Shares (collaborating with ARK) and SEC staff since September. The frequency of SEC information requests has also increased, with recent meetings involving staff from Chair Gary Gensler's office.

Despite the progress, Chair Gary Gensler, a noted crypto skeptic, has not publicly indicated the SEC's stance on these filings. The primary unresolved issues include the settlement mechanism, whether cash or 'in-kind'. Many issuers, however, believe they have addressed the SEC's market manipulation concerns through surveillance arrangements with listing exchanges and Coinbase, according to the report.

The listing of Fidelity's ETF application (FBTC) on DTCC's website, following Invesco/Galaxy Digital (BTCO) and BlackRock (IBTC), among others, adds to the ongoing developments in the potential approval of bitcoin ETFs.

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