With just days left until the US Securities and Exchange Commission (SEC) is expected to approve a spot bitcoin ETF, Alistair Milne, chief investment officer (CIO) of Altana Digital Currency Fund, managed There are several myths surrounding spot bitcoin exchange-traded funds (ETFs). In recent weeks and months, several strikingly false rumors have persisted, painting a false picture of the future with a spot ETF.
Breaking myths: a look at the most shocking rumors
Milne emphasized the strict legal and operational frameworks governing spot ETFs. With this, he addressed the common myth that spot ETFs could dilute the supply of 21 million btc by injecting “paper bitcoin.” He stated: “Spot ETFs are legally required to invest net inflows into btc, which will be held by a custodian, fully audited, etc.”
Additionally, ETF providers like BlackRock, Fidelity, and Bitwise are “seeding” their ETFs with cash on exchanges to be ready to buy bitcoin when inflows occur. This is a proactive measure to manage liquidity and keep the ETF's performance in line with bitcoin market movements, but again, no manipulation is taking place.
Furthermore, the actions of spot ETFs are dictated by capital inflows and outflows, not by discretionary decisions by fund managers like BlackRock's Larry Fink. This means that the ETF's buying and selling of bitcoin is purely transactional, based on the fund's need to balance inputs and outputs. “ETF providers have no discretion regarding whether to buy or not to buy, only inputs/outputs can dictate their trades,” Milne clarified.
In the same vein, unlike derivative ETFs, bitcoin spot ETFs involve real btc, underscoring their direct link to cryptocurrency market dynamics. “bitcoin spot ETFs will dramatically increase the ratio of spot btc traded to (unbacked) derivatives volumes…reducing the price influence of the latter btc will be harder to suppress, not easier,” he explained Milne.
ETF That Underperforms bitcoin to Close
Market makers (MMs) and others will trade or arbitrage ETF shares against spot bitcoin. This is done to ensure that the price of the ETF is as close as possible to the actual market value of btc, thus exploiting any inefficiencies to make profits. Milne further explained that a spot ETF that underperforms bitcoin (before fees) will likely close, as its value is expected to mirror that of the bitcoin market performance.
The discussion on X also addressed the dynamics of investor movement between different ETF providers. In response to a question about possible changes from Grayscale bitcoin Trust (GBTC) to other ETFs, Milne clarified: “GBTC will instantly be at face value, so the only sellers will probably be those who bought at a discount and want to sell back to themselves.” themselves.” -custody (like me). The net effect after 1 or 2 business days would be zero. Someone selling GBTC and buying, for example, IBTC at the same time should also have no effect.”
Another myth revolves around the reliability of ETFs. One user expressed skepticism about the reliance on traditional auditing methods, suggesting that signed on-chain messages from custodians would be the only reliable proof to prevent frauds like FTX.
Milne responded to this by highlighting that “btc holdings will have to be certified by their custodians and also audited by firms much more reputable and knowledgeable than FTX. For example, they will require that they demonstrate control of the keys to all addresses.”
At the time of this publication, the btc price was trading at $42,595.
Featured image created by DALL·E 3, chart from TradingView.com
