Bitcoin ETF Applications Could Trade at a ‘Meaningful’ Premium, Says Reggie Browne
A recent report by Bloomberg reveals the predictions made by Reggie Browne, the head of ETF trading at GTS, regarding the potential trading dynamics of a Bitcoin ETF if it gets approved. Browne suggests that if approved, the ETF applications by asset managers could trade at a significant premium to its net asset value (NAV), potentially reaching an 8% premium.
Browne highlights that while the ProShares Bitcoin Strategy ETF (BITO), which holds Bitcoin futures, has maintained an average premium of 0.02% over the past year, trading spot Bitcoin directly poses complexities and challenges for maintaining price alignment with the underlying Bitcoin.
Concerns Over Bitcoin Spot ETF Price Alignment
Browne raises concerns about maintaining the price alignment of a spot-Bitcoin ETF with the underlying asset due to the SEC’s reluctance to allow broker-dealers to trade spot Bitcoin directly. Broker-dealers may need to use Bitcoin futures to hedge their positions when making markets in the fund, which adds complexity to the trading process and may impact the ETF’s premium to NAV.
If approved, Browne expects substantial investor interest, estimating an addition of at least $2 billion to spot Bitcoin ETFs within the first 30 days of trading. He anticipates these ETFs could attract $10 billion to $20 billion in investments throughout the year.
Bitcoin’s Price and SEC Decision
Bitcoin is currently consolidating above the $46,600 level after reaching a 20-month high of $47,100 on Monday. The cryptocurrency has experienced sideways movement just below this milestone with a slight 0.2% decline in the past 24 hours.
The upcoming decision by the SEC on Wednesday will determine the next course of action for Bitcoin. The potential outcomes are rejection, delay, or approval. Most predict approval as the most likely scenario, and the market eagerly awaits the SEC’s decision as it will significantly impact Bitcoin’s future trajectory.
Hot Take: Bitcoin ETF Approval Expected to Drive Premiums and Investment Inflows
If approved, a Bitcoin ETF could trade at a meaningful premium to its net asset value (NAV), potentially reaching 8%. The convenience, accessibility, and regulated nature of an ETF structure may drive investors to pay higher prices for these investment vehicles.
However, there are concerns about maintaining price alignment with the underlying Bitcoin due to regulatory restrictions on trading spot Bitcoin directly. The use of Bitcoin futures by broker-dealers to hedge positions may add complexity to the trading process and impact the ETF’s premium.
If the ETF is approved, significant investor interest is expected, with an estimated addition of $2 billion to spot Bitcoin ETFs within 30 days. These ETFs could attract $10 billion to $20 billion in investments throughout the year, highlighting the demand for regulated Bitcoin investment vehicles and potential market inflows.
The SEC’s decision on Wednesday will have a profound impact on Bitcoin’s future trajectory. Rejection, delay, or approval are the possible outcomes, with approval being the most anticipated by market participants.
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