BlackRock and Fidelity announced details of their spot Bitcoin ETF buyback model amid growing expectations from the SEC.

The U.S. Securities and Exchange Commission (SEC) and prominent investment firms such as BlackRock and Fidelity have been discussing technical details about a spot Bitcoin ETF, which will determine whether the agency will approve the product. It may mean that you are close to making a decision.

According to the note, the companies have been meeting with the agency over the past few weeks to discuss details of how the redemption process for spot Bitcoin ETFs will work. Vivian Fang, a finance professor at Indiana University, said the SEC appears to be in the midst of an investigation and reviewing details for approval.

BlackRock employees met with the agency on November 28 to discuss iShares. Bitcoin BTC

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trusted and presented plan Fang said there was a need for a so-called “revised spot” model that could give asset managers more flexibility if investors want to redeem their shares for the underlying assets.

In the interview, Fang analyzed the potential structure of a spot Bitcoin ETF, likening it to a basket of eggs. At issue are three separate models for determining who should liquidate Bitcoin upon redemption. Regardless of the model, investors can still get their cash back when they redeem their shares, Fang said.

Spot redemption model

Asset managers are very familiar with the so-called “in-kind” repurchase model, Fang said. This is because stock-based ETFs are primarily used. In this model, individual investors who want to redeem their shares would receive Bitcoin shares from BlackRock, which could then be converted into cash through a broker-dealer.

The SEC, on the other hand, would likely prefer a cash model that would require BlackRock to take Bitcoin out of storage, sell it immediately, and then return the cash to investors.

Fidelity also seemed to be nodding toward a model that sticks with in-kind repayment. memo About the recent meeting with the SEC

“They (asset managers) are very familiar with the type of model that doesn’t present a lot of risk,” Fang said.

The difference between the models depends on the risk BlackRock or another issuer is willing to take.

For example, if an asset manager holds 100 eggs and an investor wants all of those eggs back, they don’t want to be the one taking the conversion risk, Fang said.

“If you want one egg back, I will give you one egg back. I don’t immediately need to care how much those eggs are selling for now. It could be $5, it could be $10, but I’m holding on. If you want 1 egg, you will get 1 egg back.“Pang said.

revised model

BlackRock’s presentation at the November meeting detailed a revised plan that would not require asset managers. Immediately liquidate Bitcoin holdings upon demand; Fang said it reduces the impact of large group redemptions on ETFs and allows greater flexibility in portfolio management without incurring capital gains taxes.

“Basically, the only difference is that in the cash model, you have to sell bitcoin to raise cash,” Fang said. “In the revised spot model, I’m paying in cash. I don’t have to worry about when and how I sold my Bitcoin to get this cash, but now I’m paying in cash. I control the sales part.”

Fang said the revised model would be sufficient to satisfy the SEC. From an investor’s perspective, there is no difference between a cash model and a modified spot model.

“They never want to get to a point where investors want to cash out their eggs but can’t,” Fang said.

BlackRock and Fidelity declined to comment. The SEC did not respond to a request for comment.

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