The impending launch of spot Bitcoin exchange-traded funds (ETFs) in the United States, potentially around early January 2023, has brought to light two significant risks, as analyzed by Coinbase researchers David Duong and Greg Sutton.
Shortage of Regulated Bitcoin: One major concern is the potential shortage of "regulated" Bitcoin. Institutions looking to issue Bitcoin ETFs will need to acquire substantial amounts of Bitcoin from regulated sources. Given the high demand, there's a risk that these issuers might struggle to procure the necessary Bitcoin, impacting the availability of BTC for trading and investment.
Impact on 'Basis Trade' Strategy: The second risk involves the 'basis trade', a popular institutional trading strategy exploiting the price difference between spot Bitcoin and Bitcoin futures contracts. The recent increase in both spot and futures trading volumes has led to high profitability in this strategy, with potential gains reaching up to 20%. However, the launch of spot Bitcoin ETFs could lead to a narrowing of this basis, significantly reducing the profitability of this trading strategy as institutional investors gain more direct exposure to Bitcoin through these ETFs.
With 13 applications for spot Bitcoin ETFs currently pending with the SEC, and a high likelihood of approval, these risks underline the need for careful consideration and strategic planning by institutions and investors alike.
Disclaimer: Please note that the information provided in this article is based on the referenced research articles. It is essential to conduct further research and analysis before making any investment decisions. The cryptocurrency market is highly volatile, and investors should exercise caution and consult with financial professionals before engaging in cryptocurrency trading or investment activities.
