Spot Bitcoin ETFs have generated strong enthusiasm among investors in recent months. With only three weeks left before the SEC decides on the matter, the community is on fire. However, Coinbase researchers warn of the risks of this type of digital asset. They identify two main risks.
Bitcoin ETF: The Side Effects of Transaction Flows
For many people, spot Bitcoin ETFs are the revolution of the moment. But risks and side effects receive less attention. Coinbase researchers David Duong, Head of Institutional Research and Greg Sutton, Senior Commercial Trader, give their notice. According to David Duong, investors focus too much on initial flows without considering their side effects. They’re most concerned about what the feeds will look like on launch day.
Indeed, most banks and analysts have speculated on this subject. JPMorgan predicts billions of dollars in outflows from Grayscale’s Bitcoin Trust. Bitwise Research estimates that total assets under management for Bitcoin ETFs could reach $72 billion within five years. This company calls the Bitcoin ETF the most successful launch ever.
Supply and basis trade risks
One risk of high demand, Duong said, is supply. Bitcoins must be purchased on regulated sites. But with high demand, issuers may struggle to purchase needed BTC. Knowing the flows is important, because we want to know that the demand is there. But we should think about “the other side of the tail,” explains Mr. Duong.
The second risk relates to basis trade, or basic trading. it’s about the difference between the spot price of BTC and its futures price on the CME, the futures exchange. If spot Bitcoin ETFs are approved for launch in 2024, it could lower the basis, Greg Sutton said. The basis will likely decline as investors have more options for exposure.
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