As the Securities and Exchange Commission appears on the precipice of approving the first wave of Bitcoin ETFs, issuers are jockeying for an early advantage to attract investors.
In late December, two of the major issuers—Fidelity and Galaxy/Invesco—released details on their fees, while a slew of issuers named authorized participants, setting the stage for a battle to gain a crucial early-mover status.
The crypto industry has long looked at a spot Bitcoin ETF as a surefire vehicle to bring traditional investors, from retail traders to asset managers, into the volatile sector.
Since the Winklevoss twins first filed for approval in 2013, the SEC has rejected applications, citing the immature Bitcoin market and the potential for manipulation. After the crypto asset manager Grayscale won a critical court case against the agency in 2023, however, the SEC has signaled its intention to open the floodgates to the investment vehicle, which tracks the current price of Bitcoin.
There are currently 12 issuers vying for spot Bitcoin ETF approval, including BlackRock, Fidelity, Grayscale, and Franklin Templeton. In late December, Reuters reported that the SEC asked issuers to file their last revisions to their applications by the end of the year ahead of a launch date that could come as soon as Jan. 10—the deadline for the SEC to approve or reject the first issuer in line, Ark/21Shares.
New details
As issuers file updates to their applications, the details of how the ETFs will function has come into focus. For weeks, the predominant question has focused on the model of redemption that issuers will follow. ETFs, or exchange-traded funds, function with the help of institutional investors called authorized participants who can create or redeem individual shares in the fund as part of an arbitrage system that keeps the price of the ETF shares close to the value of the underlying asset. While most ETFs hold traditional stocks or bonds, which are simple for authorized participants to buy and sell, a Bitcoin ETF presents a more challenging model.
Rather than having authorized participants buy or receive Bitcoin directly from the issuer—the “in-kind” model—the SEC pushed issuers to follow a cash model, which would put the onus of Bitcoin buying and selling on the issuer, reflecting the agency’s reluctance to allow broker-dealers to handle Bitcoin.
In updated filings from Dec. 29, Fidelity, Galaxy/Invesco, WisdomTree, Valkyrie, and BlackRock all listed the first authorized participants that they will work with. Fidelity and WisdomTree both named Jane Street Capital, a secretive trading firm that previously employed FTX founder Sam Bankman-Fried. BlackRock and Galaxy/Invesco, a partnership between the crypto firm run by Mike Novogratz and the traditional investment management company, both named JP Morgan and Virtu, a market-making firm. Valkyrie named Jane Street and Cantor Fitzgerald.
More critically, two of the issuers released details on the fees that they will charge investors for the ETF—a key detail that could determine the most popular options in the crowded field. Invesco/Galaxy announced that it would waive fees for its first six months of operation and for the first $5 billion in assets held, followed by a 0.59% fee. Fidelity announced its fee would be 0.39%. Eric Balchunas, a senior ETF analyst for Bloomberg, predicted on X that BlackRock would set its fee at 0.47%.
As the crypto industry waits for the SEC’s final decision, the price of Bitcoin is rallying on an expectation of approval, soaring to nearly $46,000 on Tuesday morning—its highest price since April 2022.
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