The Securities and Exchange Commission has been working with well-known investment firms like Fidelity and BlackRock to iron out the technical details of a potential spot bitcoin exchange-traded fund (ETF). This could mean that the agency is almost done debating whether or not to approve the product.

Memos reveal that during the last few weeks, firms have met with the agency to discuss specifics regarding the redemption procedure for a spot bitcoin ETF. Professor of finance at Indiana University Vivian Fang stated that it appears the SEC is currently in an inspection phase and working out the specifics for a potential approval.

November 28, BlackRock representatives convened with the organization to deliberate on its iShares Bitcoin Trust and showcased a blueprint for a purported “Revised, According to Fang, the “In-Kind” model may allow the asset manager greater latitude in the event that investors wish to exchange their shares for the underlying asset.

Using the analogy of a basket of eggs, Fang dissected the possible configurations of a spot bitcoin ETF in an interview. Three different models for figuring out who would have to liquidate bitcoin in the event of a redemption are at stake. According to Fang, investors would receive cash back when they redeemed their shares regardless of the model.

Model of in-kind redemption
According to Fang, asset managers are well-versed in the “in-kind” redemption model because stock-based exchange-traded funds (ETFs) typically employ it. According to that plan, retail investors who wish to redeem their shares would receive their bitcoin back from BlackRock, which they could subsequently exchange for cash through a broker-dealer.

Conversely, the SEC probably prefers the so-called cash model, which calls for BlackRock to remove the bitcoin from storage, sell it immediately, and then return the investor’s money.

A memo regarding Fidelity’s recent meeting with the SEC indicates that the company has also appeared to be leaning toward an in-kind redemption model.

“Asset managers are highly acquainted with a kind of model that carries little risk,” Fang stated.

The level of risk that BlackRock, or any other issuer, is willing to assume determines how the models differ from one another.

Investors don’t want to bear the conversion risk, for instance, if an asset manager holds 100 eggs and they all want their eggs back, according to Fang.

“You want your one egg back, I’ll give you your one egg back, I don’t have to immediately care about how much that egg is selling for now, it can be $5, it could be $10, but I’m holding one egg for you and you’re getting one egg back when you want it,” Fang stated.

The updated model
BlackRock presented a revised plan during the November meeting that would lessen the impact of large collective redemptions on the ETF and allow the asset manager to hold bitcoin holdings without having to immediately liquidate them upon demand.

according to Fang, for more freedom in managing the investment portfolio without having to pay capital gains taxes.

“Basically the only difference is that in the cash model you have to sell bitcoin to raise that cash,” Fang stated. “Under the revised in kind model, I’m making a cash payment right now; you don’t need to worry about when or how I sold bitcoin to obtain this money. You give me control over the selling portion.”

According to Fang, the updated model might be sufficient to appease the SEC. From the perspective of the investor, there is no distinction between the updated in-kind model and the cash model.

“They never want investors to reach a stage where they feel the need to convert their nest eggs into cash because they cannot,” Fang uttered.

Fidelity and BlackRock declined to comment. A request for comment from the SEC was not answered.

As 2024 draws near, major asset managers’ anticipated approval date for Bitcoin ETF applications is growing. Now, experts have made audacious predictions. James Seyffart, an exchange-traded fund (ETF) expert for Bloomberg, identified the possible approval window as occurring between January 5 and January 10.

The cryptocurrency community is excited about this timeline’s significance because the approval could be a significant turning point for the sector. But experts stress that missing this window to approve could have serious repercussions for both the SEC and prospective ETF applicants.

Approval of Bitcoin ETF Anticipated for January 8th
Any possible approval orders for the Bitcoin (BTC) ETF are expected to take place on Monday, January 8, Tuesday, January 9, or Wednesday, January 10, according to James Seyffart. Expert Eric Balchunas and Seyffart predict that there is only a 10% chance that the approval will come outside of this window.

Moreover, according to Seyffart, the SEC’s position on financial products linked to cryptocurrencies may change significantly if the ETF is not approved within the anticipated window.

This would imply that the regulator, SEC Chairman Gary Gensler, has adopted a tough stance or that they don’t think the market is prepared for a spot Bitcoin ETF. In the latter case, it’s probable that 21Shares and ARK Invest, two ETF applicants, voluntarily withdrew their applications in exchange for future consideration.

Custodia Bank’s founder and CEO, Caitlin Long, anticipates a fierce marketing competition among Bitcoin spot ETF issuers should the anticipated approval window materialize.

Long emphasizes that these issuers will come under intense scrutiny as they fight for investors’ interest and negotiate the post-approval environment. It is anticipated that this development will excite mainstream investors, many of whom have expressed interest in learning more about Bitcoin’s comeback after periods of skepticism.

The timing of the possible approval coincides with the US presidential election and the April halving event, which further elucidates the workings of the market.

BTC Achieves New Yearly High With High Approval Probability
Insider sources claim that the SEC has held lengthy meetings with issuers of Bitcoin spot ETFs. With a reported 99% confidence level, these discussions have indicated a high probability of approval.

All applications are reportedly carefully reviewed by the SEC, who makes sure that all requirements are satisfied and that every detail is looked at in great detail. Pending a court ruling, well-known cryptocurrency asset management company Grayscale is aggressively exploring the prospect of becoming the first to launch a conversion-based ETF.

As of right now, Bitcoin has crossed $38,800, more than $400 above its previous milestone. The $40,000 mark, which has not been attained since April 2022, is the next objective in sight.

With BTC extending its gains by 2.9% over the last 24 hours and a 1.7% increase over the last 7 days, the bullish momentum has persisted.

It is unclear how the price of Bitcoin will react as the ETF approval date draws near. Furthermore, investors are watching the cryptocurrency closely to see how it does in the last few months of the year.