Crazy updates on Bitcoin spot ETF, with Jane Street, JPMorgan, and others making the AP list

According to previous reports, the U.S. Securities and Exchange Commission (SEC) has set an important deadline for companies wishing to launch Bitcoin spot ETFs, which was yesterday, 12/29, as the final adjustment for their Bitcoin spot ETF proposals. The amendment that came last night like snowflakes focused on the list of authorized participants (AP) designated by each company. What are APs? Why does the SEC attach such importance to them?

What are AP Authorized Participants?

One of the key features of ETFs is the involvement of Authorized Participants (APs), who can engage in arbitrage using the Net Asset Value (NAV) of the assets they hold and the ETF to maintain consistency between asset value and market value.

Note: Grayscale, due to the absence of this system, has experienced severe premiums and discounts.

APs can exchange ETF shares directly with the asset management company for the ETF's underlying assets, in this case, Bitcoin in the primary market to keep the ETF closely aligned with the spot market price through arbitrage. APs need to undergo a qualification process.

Bloomberg ETF analyst Eric Balchunas points out that as assets like Bitcoin are relatively new, the SEC not only wants APs clearly identified in the documents but also wants them to be the authorized participants for the ETF,

What makes this AP thing tricky – and could keep some from starting gate – is not only does SEC wants the AP named in docs but it wants them to be the underwriter of the ETF too, which may make them nervous re lawsuits/risk given how brand new the asset class is. I truly hope…

— Eric Balchunas (@EricBalchunas) December 29, 2023

Jane Street, JPMorgan, Virtue, Cantor Revealed in AP List

Bloomberg ETF analyst Eric Balchunas has added a line for "AP agreements" in the Bloomberg terminal for users to fill in, but he notes that most S-1 forms currently have the AP field blank. He speculates that there will be a frenzy of AP and fee rate updates in early January.

Currently, the five companies that have listed AP names include BlackRock, Fidelity, WisdomTree, Invesco, and Valkyrie, while Jane Street, JPMorgan, Virtue, and Cantor have revealed their AP lists.

The ETF Fee Battle Begins

Regarding fees, aside from Fidelity's announcement of a 0.39% low fee, JPMorgan/Galaxy will waive fees for the first six months as well as for the first $5 billion in assets. Balchunas notes:

This will be a fee war, and it will never end because this is the normal life of ETFs.