A recent Bloomberg report sheds light on the predictions of Reggie Browne, the head of ETF trading at market-maker GTS, regarding the trading dynamics of a Bitcoin ETF’s potential approval on Wednesday.
Bitcoin ETF Applications Poised For ‘Meaningful’ Premium?
Per the report, Browne suggests that if approved, the ETF applications by the asset managers could trade at a meaningful premium to its net asset value (NAV), potentially reaching an 8% premium.
The ProShares Bitcoin Strategy ETF (BITO), which holds Bitcoin futures, has maintained an average premium of 0.02% over the past year.
However, Browne warns about the complexity of trading spot Bitcoin directly and the challenges it may pose for ETF price alignment with the underlying Bitcoin.
These insights come ahead of the Securities and Exchange Commission’s (SEC) impending deadline to take action on several spot Bitcoin ETF applications.
Concerns Over Bitcoin Spot ETF Price Alignment
As stated, according to Browne, the anticipated spot-Bitcoin ETF could command a significant premium above its NAV, potentially reaching a high and “crazy” number of 8%.
This premium would reflect investors’ willingness to pay a higher price for the convenience, accessibility, and regulated nature of an ETF structure.
However, Browne raises concerns about maintaining the ETF’s price alignment with the underlying Bitcoin due to the SEC’s reluctance to let broker-dealers trade spot Bitcoin directly.
According to Bloomberg, broker-dealers may need to utilize Bitcoin futures to hedge their positions when making markets in the fund, adding complexity to the trading process and potentially impacting the ETF’s premium to NAV.
If approved, Browne expects substantial investor interest, with an estimated addition of at least $2 billion to spot Bitcoin ETFs within the first 30 days of trading.
Browne anticipates that these ETFs could attract $10 billion to $20 billion in investments throughout the year, highlighting the potential demand for a regulated Bitcoin investment vehicle and the significant assets that could flow into the market.
Bitcoin is holding steady at the $46,600 level, consolidating above it following its recent surge to a 20-month high of $47,100 on Monday. The cryptocurrency’s price has experienced sideways movement just below this significant milestone, with a slight 0.2% decline in the past 24 hours.
However, it remains well-positioned to potentially surpass the $50,000 mark if positive news regarding the long-awaited index funds emerges from US regulators.
The upcoming decision by the SEC on Wednesday will determine the next course of action. There are three possible outcomes: rejection, delay, or approval.
Most, including the ETF applicants, predict approval as the most likely scenario. The market eagerly awaits the SEC’s decision, as it will profoundly impact Bitcoin’s future trajectory.
Featured image from Shutterstock, chart from TradingView.com