Fidelity FBTC applies for physical redemption, Bitcoin ETF may face a critical upgrade in October! Institutional fund movements reveal the secrets of the bull run.

Fidelity ( has officially submitted an application to the U.S. SEC to enable a physical redemption mechanism for its Spot Bitcoin ETF FBTC. This move has been confirmed by Bloomberg ETF analyst James Seyffart, who clarified that it has not yet been approved and that market rumors are false information. In addition to Fidelity, several issuers, including Ark 21Shares and Galaxy, have also submitted similar amendments, and even the Ether Spot ETF has followed suit with an application. If approved by the SEC, physical redemption will significantly enhance the operational efficiency of the Bitcoin ETF and drop tax friction costs. Meanwhile, the Bitcoin ETF has seen three consecutive days of capital outflow, with on-chain data revealing a unique pattern in this bull run led by institutions, while retail investors have yet to get on board.

Physical Redemption Mechanism: Efficiency Revolution Awaits October Approval Fidelity's FBTC submitted an in-kind redemption application ), which has sparked widespread attention in the market. Bloomberg's senior ETF analyst James Seyffart confirmed the authenticity of the application on social platform X, but explicitly refuted market rumors that it had been "approved." He emphasized: "The SEC has not yet allowed any Bitcoin ETF to conduct in-kind creation/redemption... but we expect it will ultimately be approved." The physical creation and redemption mechanism allows authorized participants (AP) to directly use Bitcoin (rather than first converting it to cash) to create and redeem ETF shares. This will make the operation model of crypto ETFs closer to traditional ETFs, significantly improving operational efficiency. More importantly, institutional participants can avoid the tax costs arising from cash conversion, dropping overall friction. It is worth noting that, in addition to Fidelity, issuers such as Ark 21Shares, Galaxy Digital, WisdomTree, VanEck, and Invesco Galaxy have submitted similar amendments. The CBOE exchange has recently concentrated applications for changes for its 5 ETFs, demonstrating the industry's urgent demand for physical creation and redemption.

October Window Period: SEC Approval Process and Market Expectations Seyffart pointed out that the SEC's first formal decision deadline regarding these physical redemption amendments is around October 10. He stated, "Our basic judgment is that all applications will be approved before October." The recent move by CBOE to concentrate the submission of applications is seen as a positive signal for the SEC's internal push to expedite the approval process. However, it should be noted that the physical redemption mechanism primarily benefits institutional market participants (authorized brokers and market makers), and the way ordinary retail investors trade ETF shares is not directly affected. Nevertheless, this mechanism is significant in reducing the overall operational costs of ETFs and narrowing the net asset value premium/discount, which is why it has garnered significant attention from the crypto community.

Capital flows show divergence: Institutional undercurrents and retail investor absence As expectations for physical redemption heat up, the capital flow of Bitcoin ETFs has shown divergence. According to Farside Investors data, Bitcoin ETFs have experienced net outflows for three consecutive days this week, totaling $285.2 million. Among them, Ark 21Shares' ARKB had the highest outflow ratio. However, the industry leader BlackRock IBIT presents a starkly different picture: after two days of zero inflow this week, it recorded a net inflow of $142.6 million on Wednesday. This divergence highlights the differences in institutional funding strategies. CryptoQuant certified analyst Burak Kesmeci reveals deeper trends through on-chain data: since the beginning of 2023, the accumulation of Bitcoin has mainly been driven by large institutions, while retail investors have continued to be in a selling state. He pointed out: "The Google search volume for 'Bitcoin' is not at a five-year low, but it is still quite sluggish. This indicates that there is currently no FOMO sentiment among retail investors, and the crowd has yet to awaken. This cycle is completely different from the madness of 2021."

Conclusion: If the physical issuance and redemption mechanism of the Bitcoin ETF is approved in October, it will become an important milestone in the upgrade of crypto financial infrastructure, further promoting the entry of traditional capital into the market. The current market presents characteristics of an institution-led "silent bull run"—on-chain accumulation continues while retail investor participation is sluggish. This structure both suggests that the upward potential has not yet been exhausted (as retail funds have not yet flowed in on a large scale) and indicates that when retail FOMO sentiment is truly ignited, it may serve as a signal light for the market to peak. Investors should closely monitor the SEC approval dynamics in October, changes in ETF fund flows, and large on-chain holding data, seeking a balance between institutional layout and retail sentiment.