As a seasoned analyst with decades of experience navigating complex financial landscapes, I find myself deeply concerned about the current state of the U.S. Securities and Exchange Commission’s (SEC) handling of spot Bitcoin ETFs. My years spent working in traditional finance have taught me that efficiency and cost-effectiveness are crucial for any market to thrive, and the inefficiencies caused by the SEC’s refusal to allow in-kind creation and redemption of Spot BTC ETFs is a significant issue that needs immediate attention.
Leaders from VanEck and Coinbase are expressing concerns about how the U.S. Securities and Exchange Commission (SEC) is managing Bitcoin Spot ETFs. They argue that the SEC’s current regulatory structure leads to higher borrowing costs. In addition, these executives claim that the SEC’s decision not to permit in-kind creation and redemption of Spot BTC ETFs has resulted in unnecessary complexities, which in turn require market players to shoulder substantial capital expenses.
VanEck & Coinbase Execs On Spike In Borrowing For Bitcoin ETFs
As Matthew Sigel, Head of Digital Assets Research at VanEck, I’ve been open about the obstacles we face due to the SEC’s regulations. In essence, the SEC’s decision not to permit in-kind creation and redemption for spot Bitcoin ETFs compels market participants like us to pre-fund numerous transactions related to Bitcoin ETFs.
As a crypto investor, I’m keen on the idea that the Securities and Exchange Commission (SEC) might consider approving in-kind transactions for Bitcoin ETFs. Currently, the process for creating these ETFs is more capital-heavy and costly than it needs to be due to this requirement. However, if approved, I believe this change could lead to tighter trading spreads.
Coinbase, a well-known cryptocurrency trading platform, is similarly dealing with the difficulties arising from the Securities and Exchange Commission’s (SEC) regulatory structure. Matt Boyd, who heads Coinbase’s Prime Finance division, emphasized the financial pressure stemming from the inconsistency between cash and Bitcoin transaction timings.
“Boyd stated, as per the Risk.Net report, that our funding costs aren’t excessively high. They resemble those typically found in emerging markets. Essentially, anyone who lets you buy before they get paid is essentially lending money and is being rewarded for this service in some form.”
The difference in settlement times between cash and cryptocurrencies, such as Bitcoin, is causing a problem for ETF managers. While Bitcoin transactions usually get processed the same day, the cash needed for these trades, supplied by authorized participants (APs) like banks and high-speed trading firms, follows a next-day settlement cycle (T+1). Consequently, ETF managers must either cover Bitcoin purchases in advance from their own funds or borrow temporarily from exchanges such as Coinbase to bridge this gap.
Calls For Broader Solutions
As a crypto investor, I’ve witnessed firsthand how the SEC’s regulatory approach has sent ripples throughout our industry, putting pressure on key players like ETF managers. For example, Duncan Trenholme, Co-Head of Global Digital Assets at TP Icap, highlighted a major issue: the challenging settlement mismatch that ETF managers are grappling with when physically hedging their ETFs. This strain is putting a significant squeeze on their inventory or balance sheet resources.
The significant interest in the Bitcoin market is clearly demonstrated by BlackRock’s iShares Bitcoin Trust, the largest spot Bitcoin fund globally. Since its debut, this fund has seen massive investments totaling over $19.5 billion. Moreover, the average daily inflows for the IBIT Bitcoin ETF have climbed to $144 million, with a single-day high of $849 million, underscoring the immense capital being poured into this sector.
Additionally, escalating lending rates and concerns about potential debtors have sparked discussions among some industry professionals about the need for more comprehensive solutions. Rob Strebel, Head of Relationship Management at DRW, who oversees their crypto trading arm Cumberland, shared insights into the modifications his company has implemented to navigate these difficulties.
“Strebel clarified that when it comes to Crypto Exchange Traded Funds (ETFs), they involve settlement processes similar to those in traditional finance rather than buying crypto directly (spot crypto). Furthermore, he mentioned that to reduce extra financial burdens, Cumberland has been handling transactions stemming from its market-making operations internally.”
As a crypto investor, I’ve come across the insightful perspective shared by Michael Lie, the Global Head of Digital Assets at Flow Traders. He proposes that an industry-wide system for short-term lending could potentially ease some of the strain we’re experiencing. He explains that raising hundreds of millions of capital can be quite costly and challenging. Market-makers need to temporarily release a significant amount of cash, which is not always feasible due to the brief duration required.
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2024-08-09 16:42