SEC Sets Cash-Only Terms for Bitcoin Spot ETF Applicants

Regulatory Stance on Cryptocurrency ETFs

The U.S. Securities and Exchange Commission (SEC) is actively preparing for a potentially pivotal decision in the cryptocurrency market. This decision involves the approval of a Bitcoin spot Exchange-Traded Fund (ETF) in the $1.6 trillion sector. Recent discussions have taken place between SEC staff and aspiring Bitcoin spot ETF issuers. These conversations, held via phone, have been reported by FOX Business.

During these discussions, the SEC outlined specific conditions for the ETF applications. Notably, the SEC is insisting that any Bitcoin ETF must operate on a cash-only basis. This means issuers must buy the ETF with cash and will also receive cash upon redemption. The SEC's insistence on a cash-only model marks a significant departure from conventional ETF practices, which often include "in-kind" purchases and redemptions.

This cash-only requirement by the SEC has ignited debates among fund managers. The reason behind the SEC's strict stance is their concern over potential abuses in transactions involving cryptocurrencies. This requirement is seen as a crucial step to mitigate regulatory challenges unique to Bitcoin ETFs.
David Weisberger, co-CEO of CoinRoutes, shared his insights on this development:

"It is clear from all subsequent S-1 filings that the Commission directed the changes to the cash system, apparently as a final hurdle before transition. While the timing is uncertain, it seems likely that it will occur before the next deadline on January 10."

Despite these stringent conditions, there is an air of optimism among asset managers. Based on their interactions with SEC staff, they anticipate a favourable decision from the SEC, potentially by January 10.

While the SEC's stringent cash-only requirement for Bitcoin spot ETFs represents a cautious approach towards cryptocurrency regulation, it also underscores the ongoing tension between innovation and regulatory oversight in the digital assets space.