In a surprising disclosure, the U.S. Securities and Exchange Commission (SEC) has published on its website a memo listing attendees of a private WebEx meeting held last Wednesday, September 8th between Fidelity Digital Assets and SEC personnel.

The link also features the proprietary presentation made by Fidelity to the SEC, requesting approval of Fidelity’s application for a exchange-traded fund (ETF). You can see a screenshot of the memo that lists those who were present here.

ETFs refer to security which tracks a particular asset, commodity, sector, or index. ETFs are flexible in the sense that they can be traded on the stock exchange like any other stock. However, ETFs typically offer greater diversification and less risk.

The published documents revealed some interesting facts about Fidelity’s thinking and rationale for submitting its ETF application, including the name of the fund “Wise Origin Bitcoin Trust.” According to the following slide, a key driver of the Bitcoin fund was high institutional demand for access to Bitcoin.

From this packed slide, it’s worth noting the reference to in the lower left hand corner, Fidelity’s 2021 Digital Asset Survey, which found:

• 33% of US institutional investors are invested in digital assets today
• Their preferred way to access digital assets is through an investment product
• 69% of US institutional investors feel digital assets should be part of an investment portfolio going forward
• A bitcoin exchange-traded product (ETP) is the most appealing digital asset investment product, with 38% of US institutional investors finding it appealing

Equally interesting was Fidelity’s admission in the slides that providing investors with a real-time price for Bitcoin could be a challenge, which they would address by applying an index methodology. The index would be a Bitcoin price composite based on “…price feeds from eligible exchanges…” that would be calculated every 15 seconds, 24/7/365 and then posted to Bloomberg and FactSet in real-time.

You’ll note at the bottom of the above slide, the list of crypto exchanges Fidelity intends to use for the Bitcoin price index are Bitstamp, Coinbase (NASDAQ:), Gemini, itBit, and Kraken. Additionally, the Fidelity team used four packed slides to discuss how it would monitor the current instrument, available on the Chicago Mercantile Exchange (CME), as an early detection system against price manipulators of its own proposed ETF.

Our study’s finding that the CME bitcoin futures market leads to bitcoin price discovery across bitcoin futures and spot markets, means that an actor trying to manipulate the ETP would be reasonably likely to have to trade in the CME bitcoin futures market.

Fidelity stated that Bitcoin Futures could be traded on the CME regulation, which would provide first protection to investors from price fixers. Fidelity also added slides to the presentation that included 11 exchange-trade products applications and five mutual funds based on Bitcoin.

Here are the mutual funds.

This is all useful information for “hodlers” and should reinforce the fact that big institutional investors have big plans for cryptocurrencies.

On The Flipside

• If you look at all 29 slides on the SEC website, a case could be made that there are proprietary details in that deck that Fidelity would NOT want publicly disclosed for competitive reasons.
• Why in the “Blue Hell” did the SEC publish the deck and all of the attendees? Did it happen by accident or was there incompetence to do so?
• If you are interested in seeing the content of this slide presentation, please go to the SEC Link and download the file immediately.

What are the reasons to care?

It is important to understand that the financial institution with the most approved ETF will enjoy a significant advantage in the cryptocurrency-sphere. The ETF approval will allow for widespread adoption of cryptocurrency. It also allows for easy access for anyone not interested in KYC or digital wallets.

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