The SEC website showed a memo offering details of an argument with BlackRock and another with Grayscale.

On Sunday, the U.S. Securities and Exchange Commission (SEC) revealed on its website a memo offering details of an argument with financial giant BlackRock (NYSE: BLK) and another with crypto asset manager Grayscale Investments. These memoranda proposed changes to the rules regarding spot Bitcoin exchange-traded funds (ETFs) listing and trading by both companies.

SEC Memos May Signal Progress with BlackRock and Grayscale ETF

An SEC memo showed that on November 20, the Commission deliberated on modifications to the rules for the listing and trading of the iShares Bitcoin Trust ETF. Two different ETF reimbursement models were noted in the discussions: the in-kind reimbursement model and the cash reimbursement model.

The first involves final redemptions of Bitcoin shares held by the ETF, while the second exchanges Bitcoin shares for equivalent cash. In a tweet, Bloomberg ETF analyst James Seyffart noted in a post on X BlackRock’s apparent preference for the in-kind reimbursement model:

“Looks like @BlackRock also met with SEC! There’re a couple slides in relation to in-kind vs cash creation. Based on this it looks like BlackRock prefers in-kind for their #bitcoin ETF (makes sense as its probably cleanest structure for them & end investors).”

BlackRock and several other companies such as Fidelity, WisdomTree, Invesco, Valkyrie, VanEck, and Bitwise are awaiting responses from the SEC for their Bitcoin ETF spot applications. The general market opinion is optimistic about the possibility of approval in January.

Grayscale So Far

Grayscale, which has filed to convert its Grayscale Bitcoin Trust (GBTC) into a spot ETF, has entered into talks with the SEC. Nate Geraci, president of ETF Store, revealed vital insights after Grayscale’s recent SEC meeting, explicitly emphasizing the terminology used around the Grayscale Bitcoin Trust’s “conversion” being called “uplisting.”

Geraci noted that this terminology does not imply obstacles in the transition to an ETF. He highlighted Grayscale’s potential and pointed to a significant opportunity for the company to take the lead. He said this could happen if they “list GBTC on NYSE Arca on the same day other issuers launch BTC spot ETFs.” He also emphasized the importance of competitive rates as a strategic advantage.

Geraci’s analysis projected Grayscale’s strong entry into the market. He expects the company to begin operations with a substantial $20 billion in assets under management. This forecast carries weight even in light of BlackRock’s involvement in the space.

Industry Dynamics and Regulatory Progress

The talks between these financial powerhouses and the SEC reflect a broader trend within the cryptocurrency space. The quest for timely approval of a Bitcoin ETF has been a protracted journey, with several companies seeking regulatory consent amid changing market dynamics.

Grayscale’s recent legal victory and ongoing discussions imply a paradigm shift, highlighting the industry’s persistence in pushing mainstream crypto investment vehicles. However, uncertainties remain, reflecting the SEC’s cautious approach.

The SEC has always complained that previous proposals did not adequately address market manipulation and other problems. While the SEC refrains from revealing details of these recent conversations, the industry remains concerned, awaiting the regulator’s recommendations.

The market implications of a potential approval or rejection loom large, with significant ramifications for the broader market.

By Leonardo Perez


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