Contents
The anticipation surrounding the introduction of Bitcoin ETFs, particularly after BlackRock‘s announcement in June 2023, has been significant. With the recent approval of nine spot Bitcoin ETFs in the U.S., the question arises: how do these ETFs influence the price of Bitcoin directly?
Highlights:
- Bitcoin ETFs mainly affect Bitcoin price indirectly through long-term supply and liquidity dynamics.
- Understanding these dynamics is crucial for navigating the evolving digital asset landscape.
- The analysis mainly focuses on spot Bitcoin ETFs; futures ETFs have different dynamics.
- The impact of Bitcoin ETFs is still unfolding, and long-term effects are uncertain.
- The author emphasizes the importance of transparency and integration into global order books.
Bitcoin Price Action
Traditional exchanges like Coinbase or Binance facilitate direct buying and selling of Bitcoin, impacting its price in real-time. The displayed price reflects the average of buyers’ and sellers’ offers. Global combined order books help maintain price convergence across exchanges.
Bitcoin ETF shares are created by Authorized Participants (APs) like JP Morgan and Jane Street, who submit orders along with cash. The Bitcoin reference rate is determined daily between 3 p.m. and 4 p.m. EST for share issuance. However, ETF shares’ trading does not directly impact Bitcoin’s price in real-time.
Long-term Effects on Bitcoin Price
While ETF shares’ trading may influence ETF prices, it doesn’t directly affect Bitcoin prices. Traders use Bitcoin futures to manage any discrepancies between ETF share prices and their net asset value (NAV). Large OTC trades, though impactful, are less transparent and integrated into global order books.
Potential Future Implications
The growing demand for Bitcoin ETFs may strain liquidity on OTC desks, especially considering Bitcoin’s fixed supply. As ETFs continue to attract demand, sourcing Bitcoin directly from exchanges could become more challenging, potentially affecting Bitcoin prices.
Conclusion
While the short-term impact of Bitcoin ETFs on Bitcoin prices may be limited, their long-term implications could be significant. As demand for ETFs grows, the dynamics of Bitcoin’s supply and liquidity may shape its price trajectory over months and years, rather than hours and days. Understanding these dynamics is crucial for investors navigating the evolving landscape of digital assets.
