Negotiations between the issuer of the US Bitcoin ETF and the SEC have entered a critical stage of detailed discussions.

Zhitong App has learned from industry executives that discussions between the US securities regulatory agency and asset management companies seeking to list Bitcoin ETFs have progressed to key technical details, indicating that the regulatory agency may soon approve these products.

Thirteen companies, including Grayscale Investments, BlackRock (BLK.US), Invesco (IVZ.US), and Ark Investment, are applying to the US Securities and Exchange Commission (SEC) for ETFs that track the price of Bitcoin.

Supporters believe that regulated products such as ETFs, which are linked to the spot price of cryptocurrencies, provide the best way for investors to invest in Bitcoin. However, the SEC has long rejected such products, believing that they fail to meet investor protection standards.

However, after a court ruled in August that the SEC's rejection of Grayscale Investments' application to convert its Bitcoin Trust into an ETF was incorrect, the SEC has been in contact with issuers on substantive details, some of which are typically discussed as the ETF application process nears completion, according to six industry executives and an SEC public memorandum.

These details include custody arrangements, creation and redemption mechanisms, and investor risk disclosure.

The launch of a Bitcoin spot ETF will mark a watershed moment for the industry, allowing previously cautious investors to enter the world's largest cryptocurrency through a regulated stock market. Industry insiders expect demand in the first few days of approval to reach as high as $3 billion.

However, the SEC has long been concerned about the susceptibility of Bitcoin to manipulation. Insiders said that previous discussions mainly focused on this issue and were primarily educational.

The SEC must make a final decision on Ark Investment's application by January 10 next year. Insiders said that progress in the discussions indicates that the SEC may approve Ark Investment's application in the new year and may approve some of the other 12 applications. The progress in the negotiations also helps explain Bitcoin's recent surge, with the price reaching a 20-month high this month.

Cathie Wood, CEO of Ark Investment, said in an interview last month that the nature of the SEC's discussions has changed and the chances of some applications being approved have increased.

Bryan Armour, an ETF analyst at Morningstar, said, "My guess is that the SEC will approve several ETFs at the same time, which will give investors the best opportunity to compare."

Public memoranda from the SEC show that executives from BlackRock, Grayscale Investments, Invesco, and 21Shares, which collaborates with Ark Investment, have been meeting with SEC staff, as well as their lawyers and exchange executives seeking to list ETFs, since September. Other fund managers also said they met with SEC staff during that time. BlackRock's meeting memorandum describes the revised redemption mechanism of the asset management company in detail.

BlackRock did not respond to requests for comment. Invesco declined to comment. A spokesperson for Grayscale Investments said, "Grayscale continues to have constructive engagement with the SEC." According to memos and sources, while past meetings were mainly held with staff from the SEC trading market and corporate financing departments, recent meetings have been held with staff from Chairman Gary Gensler's office. Insiders say that the pace at which the SEC requests information has also accelerated from every few months to about once a week.

One insider said that as the discussions deepened, issuers had to update their documents to reflect new details. For example, this week, BlackRock revised its submitted documents to provide more insights into the measures it plans to take to protect investors.

Cryptocurrency Skeptics

It is certain that the SEC has not publicly stated - nor has it indicated to the media - whether it will approve these products. Insiders say that there are still some sticking points, primarily whether issuers will establish a cash settlement mechanism or a "physical" settlement mechanism.

An SEC spokesperson stated that the agency does not comment on individual filings. Gensler is a cryptocurrency skeptic who has accused the industry of disregarding SEC rules. In October, he stated that the agency's commissioners may consider ETF applications, but he did not specify a timeline.

Shortly after a federal appeals court ruled that the SEC had failed to explain why it rejected Grayscale Investments' ETF application, the SEC began meaningful engagement with issuers. The SEC did not appeal, so the agency must now review Grayscale Investments' documents.

Some sources believe that the wording of the Grayscale Investments ruling limits the SEC's grounds for rejecting these applications again. Many issuers believe that they have addressed the SEC's concerns about market manipulation through oversight arrangements between listing exchanges and Coinbase, the largest cryptocurrency exchange in the United States.

If the SEC wants to buy more time, it can ask Ark Investment to withdraw its application and resubmit it, but market participants say that this approach may carry legal risks, given the ruling on Grayscale Investments.

Roxanna Islam, Director of Sector and Industry Research at data company VettaFi, said, "I don't think there's anything stopping these types of products from moving forward."