It is widely expected that the Securities and Exchange Commission will approve a spot bitcoin ETF in January. Bloomberg Senior ETF Analyst Eric Balchunas and Cahill Gordon & Reindel LLP Partner Sam Enzer tells Yahoo Finance Live about the hurdles firms are facing to get these approvals.

Bakchunas notes that firms will want to have a cash-redemption model, not an in-kind transaction model. He also says that firms are rushing to get a "signed agreement with an authorized participant." With those requirements, Balchunas says "it's possible not all of these issuers even make it to day one... If they don't make it to day one, I mean, unless your BlackRock or Fidelity, you might as well forget it."

Enzer meanwhile says the "bitcoin spot market is mature at this point" and that the market has "the depth and the liquidity to ward off things like manipulation," which strengthens the case for approval. Enzer also notes that the bigger institutions getting into the space have the reputation and can offer the investor protections the SEC likes to see.

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Video Transcript

- You cover the ETF industry very, very closely. Presuming that we get approval here, and I believe you're in the same camp as Sam, what is going to be different about these ETFs? What sort of special boxes are the issuers going to need to tick to get these approvals?

ERIC BALCHUNAS: Yeah, we have a note out today saying that just making it to the starting gate is half the battle. It's sort of the race before the race. And what we're hearing is, as was just mentioned, the big thing the SEC was concerned with was in-kind creation redemption. They didn't want that because that means broker-dealers and unregistered broker-dealers touch Bitcoin. They don't want that.

Cash creations is more of a closed network where only the issuer touches Bitcoin. So you have more control with that it's not as great for the investor. But I think, largely, it will be unnoticed by the end investor. So that's step one.

Step two is the harder part. That is to get a signed agreement with an authorized participant, Every ETF needs an AP, somebody to step in, provide liquidity, do creations redemptions. And we are hearing that not everybody has had-- is getting those signed yet. And we're, basically, I don't know, 24 hours before-- sorry, 48 hours before the S-1s are due.

So I'm hearing there's a mad scramble as we speak to get, you know, a Jane Street or a Virtu to sign on for each of these ETFs. So it's possible not all of these issuers even make it to day one. And if they don't make it to day one, I mean, unless you're BlackRock or Fidelity, you might as well forget it.

- And, Sam, another question I had was there-- have there been any kind of changes in the spot Bitcoin market itself, Sam, that has regulators, perhaps, more comfortable with greenlighting this product? Or no, it doesn't have to do with market conditions. This is just frankly the SEC in some sense is boxed in here.

SAM ENZER: I think it's that the SEC is boxed in. I think that my view is, my personal view is the Bitcoin spot market is mature at this point. Bitcoin has been around since 2009. There are very well developed spot markets in it. You've had Bitcoin future ETFs that have been approved for I think around five years.

So the market for Bitcoin has the depth and the liquidity to ward off things like manipulation. This is a legitimate asset class with the court ruling in the DC court in the Grayscale case. And the fact that institutions like, you know, galaxy, BlackRock, Fidelity getting in. You see that this is a serious market the SEC can't ignore it anymore, regardless of SEC Chair Gary Gensler's position against-- against crypto, generally.

But I will say, you know, to the extent, there has been some change. I do think after the grayscale ruling, after it became clear that it was almost inevitable that some type of spot Bitcoin ETF would have to be approved, I think you've seen much more serious institutions get into the space.

Many of my clients are institutions that you would see in traditional finance, who, you know, have the record of the reputation and the record with regulators like the SEC. They can offer a product that consumers can be confident in that offer, the type of investor protections, that the SEC likes to see. And so those types of institutions, the [? Galaxys, ?] the Fidelitys, the BlackRocks of the world, are here. They're offering a real product. And so I think to the extent that there has been a change, you could say it's that.