After a momentous week of creating financial history, the highly anticipated introduction of Bitcoin exchange-traded funds in the United States reverberated through the market, causing a significant impact. Despite various research firms releasing reports applauding the robust performance of these ETFs, a discerning market researcher uncovered discrepancies, casting doubt on the accuracy of the reported flows.
Drawing attention to a chart by Bloomsberg analyst Eric Balchunas, the researcher emphasized instances where trading volume exceeded actual fund flows. He argued that such discrepancies are plausible after an ETF is established but unlikely at its inception when there are minimal outstanding shares. For instance, IBIT recorded $1.6 billion in trades but reported only $500 million in inflows. The researcher noted that limited borrowing exists initially, and only market makers, enjoying an exemption, can short. Consequently, market makers largely provide offer-side liquidity.
The researcher clarified that day traders can contribute to volume without affecting flows, as flows result from net buying and selling by ETF market makers. The researcher examined specific cases and highlighted that GBTC traded $4.2 billion but reported only $580 million in outflows. The discount on GBTC continued to widen, reaching 2.5%. In contrast, IBIT and similar ETFs traded at premiums, ranging from +1-4% on day 1 to +0.5-1% on day 2.
The researcher explained that ETF market makers engage in pure arbitrage, exploiting the spread by buying GBTC at a discount and selling IBIT and others at a premium. With significant profit potential, this strategy incentivizes market makers to prioritize IBIT volume. The researcher emphasized that a considerable portion of IBIT’s volume comes from ETF market makers creating shares rather than repurchasing them.
Bitcoin: The Delays In ETF Flow Data
Challenging the accuracy of reported flows, the researcher delved into settlement intricacies, noting a mismatch between ETF settlement [T+1] and instant Bitcoin settlement [T+0]. ETF providers accommodated market makers by allowing them to create or redeem transactions between 4 and 6 p.m. for T-1 Net Asset Value [NAV], which, according to the researcher, might contribute to delayed reporting of flows.
The researcher estimated that over $2 billion may have flowed out of GBTC and into other Bitcoin ETFs, pointing to potential redemptions. However, verifying redemptions would require access to all Grayscale’s wallet addresses, information not publicly shared. Arkham Intelligence, a source cited, only presented partial wallet data.