The cryptocurrency community has recently taken a collective sigh of relief and anticipation, buoyed by the Securities and Exchange Commission’s (SEC) latest move. The regulatory body is extending a guiding hand to exchanges that are looking to add spot bitcoin exchange-traded funds (ETFs) to their platforms, a move that many interpret as paving the way for potential approval.

An influential voice within the ETF analysis sphere announced on a notable social media platform the ongoing conversations between the SEC’s Division of Trading and Markets and exchanges. It was reportedly advised to pursue a cash creation process for their spot bitcoin ETFs, deviating from the initially proposed in-kind method. This change is expected to be filed and reflected by the exchanges within the forthcoming weeks. Such discussions have sparked optimism regarding the SEC’s stance on spot bitcoin ETFs, which is seen as a positive signal by many.

About the SEC’s Guidance on Spot Bitcoin ETFs

Two types of creation methods exist for the formation of ETF units, through either in-kind or cash provisions. The former entails the exchange of securities for new ETF shares, whereas the latter involves cash transactions leading to the creation of ETF shares. According to industry analysts, the cash creation approach holds merit, particularly in the context of broker-dealers who are typically restricted from direct bitcoin transactions. This method shifts the responsibility of bitcoin transactions to ETF issuers, streamlining operations for broker-dealers by eliminating the need to engage with unregistered entities or third-party firms in relation to BTC.

Some industry insiders noted that only a limited number of filers had previously considered cash creations for their spot bitcoin ETFs. Most preferred the in-kind method. Hence, they may need to adapt their approaches to avoid potential delays. However, the switch to cash creations neither diminishes nor boosts the likelihood of the approval of a spot bitcoin ETF, maintaining current approval odds while reinforcing a functional procedure that the SEC seems comfortable with.

Industry Reactions to SEC’s Input

Feedback from the crypto sector is largely positive, with leading figures highlighting that this step could bring much-needed clarity to the debate between cash and in-kind creations. Some even drew parallels to Canadian spot ETF practices that have employed the cash creation model for years, suggesting a degree of success and familiarity with the approach.

Nonetheless, different schools of thought exist within the industry. Certain experts advocate for the efficiency of in-kind creations, suggesting a gap in the regulator’s understanding or acceptance of the finer points of ETFs and bitcoin. Purveyors of this perspective cite operational efficiency and benefits to investors, including favorable impacts on spreads and tax implications, as reasons why in-kind creations might be superior.

As discussions evolve, it’s conceivable that some market players might champion the in-kind creation method, potentially gaining traction in conversations with SEC officials.

Recently, the SEC’s chairman made public that the commission is assessing a handful of spot bitcoin ETF applications. The expectation is high within the community for SEC to endorse multiple spot bitcoin ETF applications simultaneously, perhaps in the upcoming year.

How will this development influence the cryptocurrency landscape? Share your perspectives on the SEC’s nudging of exchanges towards cash creations for spot bitcoin ETFs in the comments.