Fidelity’s Bitcoin Spot ETF Process Map: A Deep Dive into the SEC’s Concerns over Physical Operation Models
Fidelity’s Groundbreaking Meeting with SEC: Unveiling the Physical Creation and Redemption Design
Recently, asset management giant Fidelity had a crucial meeting with the SEC’s Division of Trading and Markets to discuss their physical creation and redemption design for a Bitcoin spot ETF. This was followed by the filing of their second S-1 amendment. With BlackRock having proposed a similar physical model, the key question remains: What is holding back the SEC from approving Bitcoin spot ETFs?
Further reading：Bitcoin Spot ETFs Approach Critical Milestone: A Comprehensive Look at SEC Review Dates and Negotiations
Fidelity’s Bitcoin Spot ETF Process Explained
During the meeting with SEC officials, Fidelity discussed their recent Bitcoin spot ETF process map, emphasizing the efficiency of physical creation, arbitrage, and hedging. The model involves self-clearing ETF market makers, acting as agents for non-self-clearing ETF market makers with crypto affiliations, to facilitate efficient arbitrage. This physical creation and redemption process is crucial for enhancing trading efficiency and secondary market pricing for all participants.
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The Key Roles in Fidelity’s Model
The process map highlights the distinct roles of self-clearing (purple-framed) and non-self-clearing (red-framed) market makers. The self-clearing market makers, representing registered broker-dealers, do not directly handle physical Bitcoin. In contrast, the non-self-clearing market makers, representing unregistered broker-dealers, can access physical Bitcoin.
Nate Geraci’s Insight on Workflow Implications
Nate Geraci, President of The ETF Store, commented on this workflow’s significance, noting that registered broker-dealer entities do not handle tokens in any part of the workflow, addressing a primary SEC concern.
BlackRock’s Similar Approach to Physical Model
BlackRock also met with the SEC to discuss its physical ETF model. Bloomberg ETF analyst Eric Balchunas pointed out the key difference: offshore physical market makers obtaining Bitcoin from Coinbase and then prepaying cash to U.S.-registered broker-dealers, thereby preventing these brokers from handling Bitcoin.
Aligning with SEC’s Strategy to Limit Bitcoin Spot Trading
These approaches align with the speculation that the SEC aims to restrict the list of entities trading Bitcoin spot, as market manipulation remains a major reason for the SEC’s reluctance to approve spot Bitcoin ETFs.
Further reading：Bitcoin ETF Breakthrough: SEC Discusses Kind and Cash Redemption with BlackRock and Grayscale
Are Traditional Finance and Crypto Industry Ready?
As Fidelity delves into technical details with the SEC, Bitcoin’s price has risen again. With most Bitcoin spot ETF approval windows converging around January 10, 2024, the flurry of meetings and proposal updates between asset management firms and the SEC is fueling market optimism.
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These discussions involve potential changes in the rules of the game within the cryptocurrency domain. The complexity of ETF operation processes and their market impact reflect whether a mature industry is fully prepared for significant evolution.
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Keywords: Fidelity, Bitcoin Spot ETF, SEC, Physical Operation Model, Cryptocurrency, Market Manipulation, Asset Management, Trading Efficiency, Arbitrage, Hedging, Crypto Industry, Market Optimism, ETF Approval
