Bitcoin ETFs could trade at 8bps premium to spot, in-kind redemptions still possible later: Bloomberg Bitcoin ETFs could trade at 8bps premium to spot, in-kind redemptions still possible later: Bloomberg
U.S. broker-dealer constraints may lead to notable premiums on Bitcoin ETFs.
2 min read
Updated: Jan. 9, 2024 at 12:40 pm UTC
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In a Jan. 8 interview on Bloomberg ETF IQ, Reggie Browne from GTS, the trading and liquidity services provider, discussed the potential approval of a spot Bitcoin ETF in the U.S. and its implications. Browne predicted an initial premium of approximately 8% above fair value for the ETFs, a significant figure considering the typical premiums of more conventional ETFs.
Browne noted the unique challenges faced by U.S. broker-dealers in trading Bitcoin directly would affect the pricing of Bitcoin ETFs, primarily due to the reliance on futures contracts for hedging purposes, as futures are trading at a premium to spot Bitcoin prices.
Furthermore, Browne discussed the potential for ETF issuers to handle in-kind creations after amended S1 filings removed the methodology’s focus across the board. Most ETF applicants have settled on cash creations and redemptions, likely to appease the SEC, but Browne still anticipates a shift towards in-kind redemptions. This transition aims to align the trading practices within the ETF sphere with the regulatory structure of U.S. broker-dealers, which is not fully equipped for direct Bitcoin trades.
As the SEC continues to review applications from major financial institutions, including Valkyrie, WisdomTree, and BlackRock, the implications of Browne’s insights become increasingly relevant. The potential for an 8% premium on a spot Bitcoin ETF reflects the current regulatory challenges and the evolving nature of Bitcoin trading within mainstream financial structures.
Balchunas later added on X that he was “a bit shocked” at the 8% premium prediction, highlighting that the Canadian spot Bitcoin ETFs see 2% premiums at best. Bloomberg’s James Seyffart echoed Balchunas’ sentiment that “Reggie is a very experienced ETF market maker –not some random talking head.”
However, Eric Balchunas has since confirmed that Browne “actually meant 8bps not 8%,” which Balchunas said was “a big relief bc an ETF’s premium/discount is an imp measure of how arbitrage-able the ETF and its holdings are, which keep price close to fair value all day.”
The Bitcoin world holds its breath as it awaits the decision on whether the ETFs will be approved. The SEC issued further comments on the latest round of filings, returning to applicants on the same day, which is extremely out of the norm for such proceedings. Fox Business’ Eleanor Terrett stated that she had spoken with some issuers regarding the additional comments and
“they say they’re not worried, and the SEC hasn’t conveyed a change of plans. My sense is that they’re fairly confident this is just part of the process to get everything in before January 10th.”
Seyffart also argued that the additional comments were unlikely to mean a further delay to the approval and to “expect to see more amendments tomorrow because of this.”
Update: Added Balchunas’ confirmation of 8bps.
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Liam 'Akiba' Wright
Also known as "Akiba," Liam Wright is a reporter, podcast producer, and Editor-in-Chief at CryptoSlate. He believes that decentralized technology has the potential to make widespread positive change.
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Bitcoin, a decentralized currency that defies the sway of central banks or administrators, transacts electronically, circumventing intermediaries via a peer-to-peer network.
Eric Balchunas is an American author, ETF analyst, and Senior ETF Analyst at Bloomberg Intelligence.