- ETF specialist Eric Balchunas says the SEC may have engaged with exchanges this week regarding spot Bitcoin ETFs.
- Based on the rumors, the commission wants ETFs to do cash creates as opposed to crypto as broker dealers cannot deal in Bitcoin.
- The financial regulator may have asked the trading platforms to make amendments.
With the market counting down the clock for the eight-day window the US Securities & Exchange Commission (SEC) has to approve a spot Bitcoin exchange-traded fund (ETF), recent developments point to the financial regulator turning to crypto exchanges for engagement.
Also Read: Ethereum is a commodity, but SEC will not admit it, expert says amid ongoing ETF race
SEC engages with exchanges
An ETF specialist with Bloomberg Intelligence, Eric Balchunas has revealed speculation that the SEC may have engaged with cryptocurrency trading platforms on spot Bitcoin ETFs. According to Balchunas, the financial regulator’s Trading and Markets division discussed 19b-4 filings with exchanges this week. 19b-4 filings are used by self-regulatory organizations (SROs) such as exchanges to petition the SEC for new rule changes. The rumor is that the SEC has been trying to sell the idea that spot Bitcoin ETFs should do cash creates as opposed to trading in physical crypto.
Based on the report, the financial regulator’s proposition is that broker-dealers cannot deal in Bitcoin, unlike exchanges. But if the ETFs do cash creates, the broker dealers – who are essentially the institutional players tabling their spot BTC ETF applications to the SEC – would take the initiative to transact in BTC.
This, according to Balchunas, would mean less limitations for everyone as it would keep the institutional players from having to use unregistered subsidiaries or third-party firms to deal with the BTC.
Cash creates makes sense IMO bc broker dealers can’t deal in bitcoin so doing cash creates puts onus on issuers to transact in bitcoin and keeps broker dealers from having to use unregistered subsidiaries or third party firms to deal w the btc. Less limitations for them overall
— Eric Balchunas (@EricBalchunas) November 17, 2023
Nevertheless, the ETF specialist observes that only two or three filers had planned cash creates, with the rest looking to do in-kind.
This could warrant adjustment or lead to the financial regulator recording yet another series of delays. With this, the SEC may have asked the trading platforms to add amendments to their applications over the next two weeks, which though unexpected is a good sign, according to Balchunas.
Notwithstanding this recent news, Balchunas clings to the 90% odds that he and colleague James Seyffart gave the SEC for approving the spot BTC ETF by January 10.
It is worth mentioning that the Canadian spot ETFs have been using the cash create model for years now.
Meanwhile, since there was no update on Franklin’s spot BTC ETF application, which was due on Friday, Seyffart says he is expecting a delay order soon.