Why approving a Bitcoin ETF might unleash $18 billion in sell-pressure

The instauration of a spot-based Bitcoin (BTC) exchange-traded money (ETF) would marque the plus much accessible to idiosyncratic investors and communal funds. What's more, dissimilar a futures-based Bitcoin ETF, a spot-based ETF involves really buying BTC.

So volition the support of the archetypal Bitcoin ETF beryllium a bullish event? Not necessarily.

GBTC 'discount' remains successful the treble digits 

Over the years, the U.S. Securities and Exchange Commission (SEC) has rejected each Bitcoin ETF applicant, and the latest denial was issued to VanEck Bitcoin Trust connected March 10, 2023.

The SEC concluded that the connection did not person a "comprehensive surveillance-sharing statement with a regulated marketplace of important size related to spot Bitcoin." Regulators are hesitant to merchandise what galore judge would beryllium a much equitable and transparent Bitcoin product. 

Investors present question whether the latest bids from ARK Investment and BlackRock to motorboat their spot Bitcoin ETFs mightiness beryllium the solution to Grayscale’s Bitcoin Trust (GBTC), an concern conveyance with shares traded connected the banal exchange.

Interestingly, the GBTC "premium" jumped to its champion levels successful months aft BlackRock announced its ETF filing. 

Grayscale GBTC premium/discount to nett assets. Source: CoinGlass

But portion the imaginable support of a spot Bitcoin ETF mightiness look bullish astatine first, its consequences for BTC terms tin beryllium negative, astatine slightest successful the abbreviated term.

What's an ETF?

First, an ETF is simply a signifier of information that holds divers underlying investments, specified arsenic commodities, stocks and bonds. The ETF whitethorn lucifer a communal money due to the fact that its issuer pools and manages the fixed assets.

The astir well-known illustration of this instrumentality is SPY, the ETF that tracks the S&P 500 index. State Street is successful complaint of managing the communal fund's $436 cardinal worthy of assets.

Related: Bitcoin ETF contention gets hotter arsenic ARK Invest adds surveillance statement to application

Buying an ETF grants the capitalist nonstop ownership of the fund's contents, resulting successful antithetic taxation consequences than holding futures contracts oregon leveraged positions. While Bitcoin spot ETFs proceed to beryllium rejected, identical products person been disposable for decades for bonds, planetary currencies, gold, Chinese equities, existent estate, and oil.

30% GBTC discount is apt justified

The Grayscale Bitcoin Trust (GBTC), an concern money with $18.4 cardinal of assets nether management, is presently trading astatine a -30% discount versus its Bitcoin holdings. This spread betwixt their 626,778 Bitcoins astatine marketplace worth and the GBTC shares trading connected regular banal exchanges reached arsenic debased arsenic -49% successful December 2022.

Consequently, this discount is apt justified arsenic the instrumentality lacks the tools to let arbitrage. Grayscale's GBTC is the undisputed person successful the cryptocurrency market, contempt being classified arsenic a closed-end fund, which means that the fig of disposable shares is limited.

Shares of GBTC are not freely created, nor bash they person a redemption plan. Due to this inefficiency, determination are ample terms differences erstwhile compared to the fund's existent Bitcoin holdings. In contrast, an ETF gives the marketplace shaper the quality to contented and redeem shares, ensuring that the premium oregon discount is typically small.

GBTC charges a acceptable 2% yearly administrative fee; therefore, the discount whitethorn beryllium acceptable fixed that the SEC continues to cull appeals and requests from each money managers.

On the different hand, ETFs typically commercialized astatine par with nett assets, arsenic opposed to GBTC. For example, the Purpose Bitcoin ETF (BTCC.U) held a $5.63 nett plus worth per stock connected June 27, and the shares closed astatine $5.65 connected the Toronto Stock Exchange.

Similarly, the U.S. derivatives ProShares Bitcoin Strategy ETF (BITO)'s underlying terms was $16.89 connected June 28, portion its shares traded astatine $16.89.

Spot Bitcoin ETF support mightiness initially unit BTC

Essentially, an concern spot merchandise is considerably little desirable than an ETF, and Grayscale has done small to mitigate the interaction connected GBTC investors frankincense far. However, marketplace sentiment improved modestly aft the world’s largest plus manager, BlackRock, filed to launch a Bitcoin spot terms ETF.

The stock terms discount versus its contents volition yet inclination to zero arsenic redemptions and arbitrage opportunities originate if the SEC grants the plus manager Grayscale support to person its GBTC Trust to a bonafideBitcoin ETF.

In this scenario, likelihood are that a sizeable magnitude of BTC could participate the marketplace arsenic investors volition yet beryllium capable to exit their presumption astatine par.

The lone question is: however overmuch of that $18 cardinal volition travel into different Bitcoin-related instruments oregon get sold connected exchanges?

In immoderate case, there's a bully accidental that a spot Bitcoin ETF support volition nutrient important sell-pressure from Grayscale's GBTC conversion arsenic BTC that's been locked for 3-8 years reenters the market.

This nonfiction is for wide accusation purposes and is not intended to beryllium and should not beryllium taken arsenic ineligible oregon concern advice. The views, thoughts, and opinions expressed present are the author’s unsocial and bash not needfully bespeak oregon correspond the views and opinions of Cointelegraph.