Bitcoin ETF Risks: Coinbase Sheds Light On Unanticipated Challenges


In a recent podcast, Coinbase researchers unveiled potential pitfalls associated with the imminent launch of spot Bitcoin exchange-traded funds (ETFs) in the United States. These risks, overlooked in the ETF anticipation, could impact Bitcoin availability and trading strategies.

Impending Risks on Bitcoin Accessibility and Institutional Trading Strategies

As the countdown to potential spot Bitcoin ETF approval continues, experts at Coinbase highlighted two significant risks that might emerge once the trading commences.

The first concern involves the sourcing of Bitcoin for these ETFs. Coinbase’s head of institutional research, David Duong, and senior sales trader, Greg Sutton, emphasized the potential scarcity of “regulated” Bitcoin due to the ETF issuers’ need to procure enough Bitcoin for their funds.

Dissecting Risks: Bitcoin Sourcing and Basis Trade Implications

Duong cautioned about the challenge issuers might face in acquiring sufficient Bitcoin from regulated sources, especially if the demand surges. While this scenario represents heightened demand, it poses a sourcing risk that could significantly impact Bitcoin availability.

On the other hand, Sutton raised the second risk related to a prominent institutional trading strategy known as the “basis trade.” This strategy capitalizes on the price difference between spot Bitcoin and BTC futures contracts.

Current ETF Landscape and Ongoing SEC Consideration

Amidst these discussions, there are currently 13 pending applications for a spot Bitcoin ETF awaiting the Securities and Exchange Commission’s (SEC) verdict. Analysts predict a high likelihood of approval, possibly by January 10, with efforts from entities like Grayscale urging for in-kind redemptions over cash creation during recent meetings with the SEC.

Also Read: BlackRock’s Bitcoin ETF: Regulatory Concessions & Redemptions Update

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