The chief investment officer of Altana Wealth's digital asset fund, Alistair Milne, is well known in the cryptocurrency community for his analytics.
Milne recently took to Twitter to share his thoughts on the potential introduction of spot Bitcoin ETFs in the United States, clarifying critical aspects of their operation and examining the potential impact of the instrument on the cryptocurrency market.
Some BS flying around, so for those that don't know:
— spot ETFs are legally obliged to invest net inflows in Bitcoin, which will be held by a custodian, fully audited, etc.
— ETF providers are 'seeding' their ETFs by having cash on the exchange/s ready to buy when inflows occur…— Alistair Milne (@alistairmilne) December 30, 2023
Legal obligations
Milne emphasized that spot ETFs are required by law to invest net inflows directly into Bitcoin. These funds will be managed by a custodian and will be fully audited, ensuring transparency and compliance. This structure is different from derivatives ETFs, which do not involve actual BTC.
Actions of Bitcoin ETF issuers
The entrepreneur noted that ETF issuers are preparing for a potential launch by “seeding” the funds—that is, placing funds to purchase BTC if the instrument is approved. He explained that providers must act in accordance with the inflow and outflow of funds. This means that issuers' trading activity is dictated solely by these movements and not by their own investment choices.
The role of market makers
Market makers play a critical role in ensuring that the ETF's share price is as close to the actual market value of Bitcoin as possible. To do this, they trade ETF shares against spot BTC, profiting from the spread. This mechanism is vital to keeping ETFs relevant and effective in the market.
Impact on GBTC price
Speaking about the Grayscale Bitcoin Trust, Milne predicted that once the spot Bitcoin ETF launches, the GBTC share price will instantly match par. He assumes that the only sellers will be those who previously bought at a discount and want to return to self-custody of assets. The entrepreneur expects that the net effect of such movements will be neutralized within one or two trading days.
Milne also argues that selling GBTC and simultaneously buying another investment instrument, such as IBTC, will not have a significant impact on the market. This is because such actions are essentially rotations in the Bitcoin investment ecosystem, rather than deposits or withdrawals of capital.
Bitcoin ETF Performance and Survival
Milne noted that the ETF's survival will depend on its performance relative to Bitcoin. An ETF that consistently underperforms BTC will likely fail as investors gravitate toward better options.
Changes in market dynamics
Like many other experts, Milne believes that the launch of spot Bitcoin ETFs will significantly change market dynamics, increasing the share of spot trading relative to derivatives trading volume. According to the entrepreneur, this will lead to the creation of a more reliable and less susceptible to manipulation market.
Source: Cryptocurrency
I am an experienced journalist and writer with a career in the news industry. My focus is on covering Top News stories for World Stock Market, where I provide comprehensive analysis and commentary on markets around the world. I have expertise in writing both long-form articles and shorter pieces that deliver timely, relevant updates to readers.
