Spot-Bitcoin exchange-traded funds (ETFs) are showing signs of stress as the cryptocurrency market suffers, with the prices of major ETFs tracking Bitcoin showing significant discounts to the value of the underlying assets.
Several major ETFs recorded their biggest discounts to the value of their underlying assets in their brief trading history on Tuesday, after the price of Bitcoin fell about 5%. This trend continued on Wednesday as Bitcoin continued to fall, falling as much as 5.6%.
The $16 billion iShares Bitcoin Trust (IBIT) closed Tuesday about 1.7% below its net asset value, marking its biggest move since its inception in January. Likewise, the $9 billion Fidelity Wise Origin Bitcoin Fund (FBTC) and the $2.5 billion ARK 21Shares Bitcoin ETF (ARKB) both recorded discounts exceeding 1.4%, the highest on record for either ETF. The $2 billion Bitwise Bitcoin ETF (BITB) also closed at a notable discount.
James Seyffart, ETF analyst at Bloomberg Intelligence, noted that while the discount is significant, it is not unprecedented in the context of ETF trading dynamics. But these differences highlight the difficulties of integrating traditional markets with Bitcoin, where ETF shares can only be created and redeemed for cash, not Bitcoin itself.
Although price discrepancies in ETFs tend to be temporary due to the creation-redemption mechanism, Bitcoin’s volatility presents greater risk to ETF investors compared to traditional financial assets. Nonetheless, professional trading firms, known as authorized participants, take advantage of this volatility to profitably keep ETF prices in line with net asset value.
Douglas A. Cifu, CEO of Virtu Financial Inc., expressed confidence in the continued opportunity for cryptocurrency ETFs, citing the inherent volatility of the asset class. However, an uncertain macroeconomic environment that could potentially be affected by the Federal Reserve’s policy decisions poses challenges for speculative assets such as digital tokens.
While hopes persist for increased institutional adoption of spot Bitcoin ETFs, Bitcoin’s performance remains intertwined with broader economic factors. As the Federal Reserve concludes its policy meeting, the prospect of a rate cut could further impact Bitcoin’s price trajectory and ETF discounts.
Mohit Bajaj, ETF director at WallachBeth Capital, acknowledged the possibility of ETF discounts continuing if Bitcoin’s downward trend continues, highlighting the uncertainty surrounding the cryptocurrency market.
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