Reggie Browne, the head of ETF trading at market-maker GTS, warned that spot Bitcoin exchange-traded funds (ETFs) could trade at a significant premium to their net asset value (NAV) if they are approved by the Securities and Exchange Commission (SEC).
Browne told Bloomberg TV on Monday that a spot Bitcoin ETF, which would track the price of the underlying cryptocurrency directly, could see an 8% premium to the value of its holdings. This is much higher than the average premium of 0.02% for BITO, an ETF that tracks Bitcoin futures contracts and is formally known as the ProShares Bitcoin Strategy ETF.
The spread width is not the concern, I think it’s going to be the premium above NAV […] It will be some crazy number, said Browne.
Spot Bitcoin ETFs Face Regulatory Hurdles
The SEC has been reluctant to approve spot Bitcoin ETFs, citing market manipulation, custody, and investor protection concerns. Unlike futures-based ETFs, which trade on regulated exchanges, spot Bitcoin ETFs would require broker-dealers to trade the cryptocurrency directly on unregulated platforms.
This could pose a challenge for market makers, who would need to use Bitcoin futures to hedge their positions when creating or redeeming shares of the exchange-traded funds. This added layer of complexity could make it harder to keep the ETF’s price in line with the underlying Bitcoin, resulting in a large premium or discount to NAV.
Browne’s comments come as the SEC faces a Wednesday deadline to take action on at least one of the nearly dozen spot Bitcoin exchange-traded funds applications that are pending. The agency has the option to approve, deny, or extend the review period for the proposals.
Spot Bitcoin ETFs Could Attract Billions Of Dollars In Inflows
Despite the potential drawbacks, Browne said he expects spot Bitcoin ETFs to attract strong investor demand if they are approved. He estimated that investors would add at least $2 billion to spot Bitcoin ETFs within the first 30 days of trading and $10 billion to $20 billion for the full year. “While we’re going to celebrate today, I think the morning after will come with all the details,” he said.
Spot Bitcoin ETFs are a more convenient and cost-effective way for investors to gain exposure to the cryptocurrency without having to deal with the technical and security issues of buying and storing it directly. They are also expected to boost the liquidity and legitimacy of the Bitcoin market and spur innovation and competition in the crypto industry.
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