SEC: Only cash-based Bitcoin spot ETF approved for listing! Remove physical redemption hint

The U.S. Securities and Exchange Commission (SEC) is currently reviewing applications for more than 10 Bitcoin spot ETFs, including Grayscale, BlackRock, Fidelity ( Asset management giants such as Fidelity have applied to convert their Bitcoin trust fund GBTC into a Bitcoin spot ETF.

According to reports from FOX Business reporters Charles Gasparino and Eleanor Terrett, sources revealed that the U.S. Securities and Exchange Commission (SEC) held a rare joint conference call with potential spot Bitcoin ETF applicants, which was It is regarded as an important sign that the SEC may release the ETF. The purpose of the call is to ensure that all parties involved are complying with cash creation regulations, and at the same time, the SEC requires applicants to remove any hint of in-kind redemptions from their application documents. According to the predictions of many analysts, the first Bitcoin spot ETF is likely to be approved in mid-January next year. This news shows that the SEC is actively working with applicants to ensure ETF compliance and market stability. Although the SEC requires that the hint of physical redemption be removed, this does not mean that the ETF’s application will be rejected. On the contrary, it may be to reduce the SEC’s concerns about potential risks and ensure the smooth passage of the ETF. The approval of a Bitcoin ETF is significant for the cryptocurrency market and investors. It will provide investors with more convenient, secure and regulatory-compliant investment options, while also helping to promote the popularity of Bitcoin and increase market liquidity. However, despite the positive signs, investors still need to remain vigilant, as ETF approval is not a guaranteed thing and may also face some legal issues. Soon after, Bloomberg analyst Eric Balchunas also commented on this. Events commented. He pointed out that this was not one big conference call between the SEC and all Bitcoin spot ETF issuers, but rather conversations with exchanges and issuers in multiple meetings. During this meeting, the SEC asked exchanges and issuers to choose a cash creation method or else have to wait. Still, this can be seen as a positive sign.

The SEC’s consideration of adopting a cash model for spot Bitcoin ETFs is to avoid the risk of money laundering. They are worried that the physical subscription model will promote money laundering, so they focus more on cash subscriptions, which is a more closed system.

Cash creation/redemption vs. physical creation/redemption

In cash subscription mode, authorized participants (APs) use cash to purchase or redeem Bitcoin spot ETF shares. This means that authorized participants provide cash to the ETF fund, and the fund manager uses that cash to purchase Bitcoin.

This model may increase the costs and tax complexities associated with cash flow. Since cash transactions are involved, there may be capital gains tax issues involved. In addition, cash redemptions may affect the tracking accuracy between the ETF and the actual market price of Bitcoin.

In the physical subscription mode, authorized participants (APs) will use actual Bitcoin to create or redeem shares of the Bitcoin Spot ETF. This means that authorized participants will hand over Bitcoin directly to the ETF in exchange for newly created ETF shares, or exchange ETF shares for a corresponding number of Bitcoins upon redemption. This model ensures a one-to-one exchange relationship between ETF shares and actual Bitcoins, keeping the value of the ETF consistent with the Bitcoin market price.

The benefit of this model is to avoid the tax issues of cash transactions while maintaining consistency between ETF assets and Bitcoin market prices.

Schematic diagram of cash subscription mode

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