Fiat only: how did the SEC change the settlement model for spot bitcoin-ETFs and what does it affect?
In 2024, the US Securities and Exchange Commission (SEC) made significant changes to the settlement model for spot bitcoin-ETFs (exchange-traded funds). These changes relate to the requirements for the use of fiat currencies for settlement and could have an important impact on the cryptocurrency market and investors. In this article, we take a look at exactly what has changed and what implications this may have for the market.
1. What are spot bitcoin-ETFs?
Spot bitcoin-ETFs are investment funds that allow investors to buy shares that reflect the value of bitcoin on the spot market. Unlike bitcoin futures bitcoin-ETFs, which trade based on contracts for the future, spot ETFs provide direct ownership of bitcoin or its equivalent.
2 Changes to the settlement model
2.1 The previous model
Previously, spot bitcoin ETFs utilised a model in which value calculation and transactions could be conducted through cryptocurrency platforms and exchanges. This allowed various cryptocurrency mechanisms to be included in the calculations and, in some cases, created potential risks to liquidity and volatility.
2.2 New requirements from the SEC
The SEC has implemented new requirements that limit the settlement of spot bitcoin-ETFs to fiat currencies only. This means that only traditional fiat currencies, such as the US dollar, are now required to be used for settlement and transactions. These changes include:
- Restricting the use of cryptocurrency platforms: Settlements must now be conducted through traditional financial institutions and platforms that work with fiat currencies.
- Raising liquidity and transparency standards: To ensure reliable andtransparent settlement, funds must provide more granular information about their liquidity and settlement mechanisms.
- Simplifying the settlement process: The changes aim to simplify and standardise the settlement process, which may contribute to greater stability and less volatility.
3. Impact on the market and investors
3.1 Increased reliability
- Risk mitigation: The move to fiat settlement may reduce risks associated with the volatility and liquidity of cryptocurrency platforms.
- Transparency: New requirements may increase the transparency of settlements, which will have a favourable impact on investor confidence.
3.2 Simplifying access to investment
- Simplifying the buying process: Investors will be able to more easily participate in spot bitcoin-ETFs without having to interact with cryptocurrency exchanges.
- Attracting traditional investors: These changes may attract more traditional investors who prefer to deal with fiat currencies and traditional financial institutions.
3.3 Potential changes in liquidity
- Market change: The shift to fiat settlement may change liquidity in the cryptocurrency market as funds will be dependent on traditional financial institutions.
- Impact on cryptocurrency exchanges: The introduction of fiat settlement may impact cryptocurrency exchanges, which previously played an important role in settlement and liquidity.
4. Market Reaction and Future Prospects
4.1 Market Assessment
- Positive reaction: Investors and analysts may view the increased reliability and transparency favourably, which may contribute to increased interest in spot bitcoin ETFs.
- Possible Challenges: Some market participants may face challenges related to changes in settlement and liquidity.
4.2 Long-term outlook
- Market Evolution: These changes may further develop the cryptocurrency ETF market and attract new investors.
- Innovation: It is expected that new innovative solutions for integrating cryptocurrency assets and fiat settlement may emerge in the future.
Conclusion
The SEC’s changes to the settlement model for spot bitcoin ETFs are intended to improve the reliability and transparency of the market. While the move to fiat settlement may greatly simplify the purchase process and attract more traditional investors, it may also impact liquidity and the market for cryptocurrency exchanges. These changes underscore the drive towards standardisation and simplification of investment instruments, which may further contribute to the development of the cryptocurrency market.