Possible Challenges After Approval of Spot Bitcoin ETFs

• Reggie Browne, the ETF Trading Head of GTS, predicts a potential premium of about 8% on the Net Asset Value (NAV) of a Spot Bitcoin ETF.
• Despite potential premium challenges, Browne notes that market liquidity is sufficient to keep spreads competitive and tight.
• As the crypto community awaits the SEC’s decision, industry giants like Ark Invest, BlackRock, Fidelity, Grayscale, WisdomTree, Franklin Templeton, and Valkyrie are competing for approval.

There will be a great celebration when Spot Bitcoin ETFs are approved, but what about afterward? What potential challenges might arise?

The Process After Spot Bitcoin ETFs

As the SEC’s decision date for Bitcoin ETF approaches, Reggie Browne, the ETF Trading Head of GTS, predicts a potential premium of about 8% on the Net Asset Value (NAV) of a Spot Bitcoin ETF. Meanwhile, Browne highlights the complexity arising from U.S. broker-dealers not being able to trade Bitcoin directly, pointing out that trading barriers could emerge.

However, despite expectations that competitive spreads will maintain liquidity, Browne anticipates challenges in keeping ETF prices in line with values of Bitcoin below them. As the critical decision date for Spot Bitcoin ETF applications by the SEC approaches, industry expert Reggie Browne provides insight into possible challenges that investors may face.

According to Bloomberg, Browne anticipates that if approved, these ETFs could trade over 8% of an NAV due to regulatory restrictions on U.S. broker-dealers trading spot Bitcoin. Meanwhile, a fundamental barrier is the SEC’s reluctance to allow broker-dealers to engage in spot Bitcoin trading, forcing them to rely on Bitcoin futures for hedging.

This added level of complexity raises concerns about keeping the ETF price in line with lower Bitcoin prices and could potentially result in a significant premium to the NAV. Browne, acknowledging the industry’s excitement, states, “We will celebrate today, but I think the next day will come with all the details.” He predicts that investors could inject a significant amount of around $2 billion into Spot Bitcoin ETFs within the first 30 days and expects a total influx of between $10 billion and $20 billion throughout the year.

What to Expect?

Despite potential premium challenges, Browne notes that market liquidity is sufficient to keep spreads competitive and tight. Additionally, he adds that the market-making community is ready to provide significant liquidity to alleviate concerns about spread width.

Meanwhile, as the crypto community awaits the SEC’s decision, industry giants like Ark Invest, BlackRock, Fidelity, Grayscale, WisdomTree, Franklin Templeton, and Valkyrie are competing for approval. Particularly, the significant market impact that these Spot Bitcoin ETFs could bring is highlighted by the fact that Grayscale Investments’ leading GBTC fund traded over half a billion dollars in a single day.