Bitcoin’s significant sell-off might offer buy-and-hold enthusiasts a chance to purchase BTC ETF shares at lower prices.
Spot Bitcoin dropped to around $53,500, a four-month low, on Friday due to anticipated large BTC liquidations by Germany’s government and Mt. Gox, the defunct Japanese crypto exchange.
The share prices of major BTC ETFs are already being affected, and continued market volatility could lead to appealing discounts.
Bitcoin ETFs, such as Franklin Templeton Digital Holdings Trust (EZBC), VanEck Bitcoin Trust (HODL), and iShares Bitcoin Trust (IBIT), have become the benchmark for spot BTC holders since U.S. regulators approved these publicly traded funds in January.
However, the robust protections and security measures of these funds have resulted in shares trading at persistent premiums to their net asset value (NAV) since their inception, driven by institutional investments.
As of early July, the top five Bitcoin funds traded at an average premium of nearly 1%.
ETFs rely on a select group of professional market makers called “authorized participants” (APs) to maintain ETF share prices aligned with the fund’s NAV.
These APs are the only traders allowed to exchange and redeem BTC ETF shares for spot BTC, profiting from intraday pricing spreads.
Currently, only a few APs are equipped to handle BTC spot trading, making ETF shares susceptible to sharp price movements in volatile markets.
The ongoing liquidations by Germany and Mt. Gox could introduce billions of dollars of sustained selling pressure, leading to volatility and potentially wider ETF price swings, creating arbitrage opportunities for traders.
If traders are hoping for an arbitrage similar to the Grayscale Bitcoin Trust (GBTC) discounts of late 2022, they might be disappointed.
The GBTC situation, where shares traded at discounts approaching 50% of NAV, is unlikely to reoccur due to vastly improved liquidity and increasing institutional investor awareness of BTC’s value.
Bitcoin funds have already seen $398 million in net inflows since the recent sell-off.
Nevertheless, significant opportunities might still be available.
In May, shares of BlackRock’s IBIT ETF briefly dipped to a discount of nearly 2% during institutional end-of-month rebalances amid market volatility.
Other funds, including FBTC, BITB, and ARK 21Shares Bitcoin ETF (ARKB), also traded at discounts of nearly 1.5%.
With upcoming BTC liquidations from Germany and Mt. Gox, market volatility is expected to rise.
Investors should monitor ETF arbitrage opportunities closely, especially in EZBC, HODL, and IBIT, which offer attractive management fee discounts, some waiving fees entirely until 2025.
Traders willing to navigate the current volatility may find benefits.
Despite the selling pressure, BTC could see a bullish turnaround by year-end, driven by potential Federal Reserve interest rate cuts and favorable odds for Donald Trump in the upcoming U.S. presidential election.
Now is the time to look for discounts.
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