Finally, after weeks of rumors, the titan asset management company Fidelity officially filed for a Bitcoin spot ETF with the US Securities and Exchange Commission. The company filed for the ETF through Cboe BZX exchange on Wednesday, signifying the potential entry of another gigantic financial institution into the Bitcoin market.
A deeper look into the company’s application shows that the company is using the SEC’s approval to support the case for spot ETF approvals. Furthermore, the filing literature highlights the unnecessary challenges created by the regulating body that slow down the potential of the US crypto market.
The asset management company with trillions of dollars worth of assets under its administration was rumored weeks ago to file for its own Bitcoin spot ETF, following the news regarding BlackRock’s spot ETF application. Fidelity was also rumored to take over Grayscale, a digital asset manager with a portfolio that spans seventeen digital assets.
When BlackRock filed for its Bitcoin spot ETF, the price of Bitcoin increased by over $4,000 overnight. It wouldn’t be a surprise if Bitcoin finally breaks the $31,000 ceiling following Fidelity’s application.
Fidelity also backed the launch of EDX Markets, a new crypto exchange that will only allow the trade of SEC-approved cryptocurrencies. EDXM is backed by Fidelity, Citadel Security, and Charles Schwab, pretty much guaranteeing its success using sheer financial power.
While Fidelity applying for such an ETF is certainly intriguing enough, it gets more interesting when one reads through the literature throughout the filing .
First of all, Fidelity did not apply for the spot ETF itself, instead, the company used its custodian exchange Cboe BZX to file the request.
The 193-page document goes on explain the purpose of the ETF in detail while highlighting key issues the company sees with market regulations. Fidelity, or rather BZX, uses the filing’s literature to make a point for the need for a spot ETF, relying on two key points:
Strangely enough, although Fidelity is applying for a spot ETF, the document mentions Futures ETFs more than 700 times. The company uses the regulations put forth by the SEC and the CFTC to highlight both the merit and necessity of spot ETFs in the market.
“The Bitcoin Futures Approvals, however, have created a logical inconsistency in the application of the standard the Commission applies when considering bitcoin ETP proposals”
“Leaving aside the analysis of that standard until later in this proposal, the Exchange believes that the following rationale the Commission applied to a Bitcoin Futures ETF should result in the Commission approving this and other Spot Bitcoin ETP proposals.”
The literature points out a text that was created in the past by the SEC regarding the legitimacy and security of futures ETFs, which helped the SEC decide on approving futures ETFs to enter the market. Fidelity/BZX makes the argument that the same rule should apply to spot ETFs:
“The CME “comprehensively surveils futures market conditions and price movements on a real-time and ongoing basis in order to detect and prevent price distortions, including price distortions caused by manipulative efforts.”
Thus, the CME’s surveillance can reasonably be relied upon to capture the effects on the CME bitcoin futures market caused by a person attempting to manipulate the proposed futures ETP by manipulating the price of CME bitcoin futures contracts, whether that attempt is made by directly trading on the CME bitcoin futures market or indirectly by trading outside of the CME bitcoin futures market.
As such, when the CME shares its surveillance information with Arca, the information would assist in detecting and deterring fraudulent or manipulative misconduct related to the non-cash assets held by the proposed ETP.”
Further down the document, the literature points out the disadvantages US regulations are placing upon the crypto market by stifling the potential for retail investors to put their money into the market. Fidelity/BZX makes the comparison between regulations in the US vs regulations in Europe, North America, and South America:
“U.S. retail investors to gain exposure to bitcoin via a transparent and U.S. regulated, U.S. exchange-traded vehicle remains limited.
Instead, current options include: (i) facing the counter-party risk, legal uncertainty, technical risk, and complexity associated with accessing spot bitcoin; (ii) over-the-counter bitcoin funds (“OTC Bitcoin Funds”) with high management fees and potentially volatile premiums and discounts;32 (iii) purchasing shares of operating companies that they believe will provide proxy exposure to bitcoin with limited disclosure about the associated risks;33 or (iv) purchasing Bitcoin Futures ETFs, as defined below, which represent a sub-optimal structure for long-term investors that will cost them significant amounts of money every year compared to Spot Bitcoin ETPs”
“Meanwhile, investors in many other countries, including Canada and Brazil, are able to use more traditional exchange-listed and traded products (including exchange-traded funds holding physical bitcoin) to gain exposure to bitcoin. Similarly, investors in Switzerland and across Europe have access to Exchange Traded Products, which trade on regulated exchanges and provide exposure to a broad array of spot crypto assets. U.S. investors, by contrast, are left with fewer and more risky means of getting bitcoin exposure.”