Spot bitcoin ETFs could trade at premium to fair value, GTS’ Reggie Brown says

Bitcoin spot ETFs could trade at a premium if and when the trading begins because of the way U.S. institutions are currently allowed to handle the cryptocurrency, GTS co-Global Head of ETF Trading and Sales Reggie Browne said on Bloomberg Television.

“I think there is going to be a premium above NAV because U.S. broker-dealers can’t trade bitcoin [against] cash inside their broker-dealer – some can, most can’t,” he said Monday. “So you’re going to have trade hedges over futures and trade it on a premium, and then take that off, and I think there is a lot of complexity there.”

That complexity, together with the fact bitcoin futures are trading at a premium to the spot price, will cost investors “some crazy number,” he said, offering up 8% as a suggestion.

At the same time, Browne said there is enough liquidity to keep the spread “very competitive and tight.”

The “market making community is prepared to offer a lot of liquidity for this structure and resilience around it, so the spread width is not a concern,” he said.

Creations and redemptions

Browne added that he expects in-kind creations and redemptions to become a reality at some point, although they proved to be a sticking point during negotiations with the Securities and Exchange Commission. Ultimately, all the companies currently waiting for ETF applications to be approved have settled on the cash only model.

“It was really to get the ball moving, he said. “The in-kind will come after climbing a couple of mountains.”

The crypto community has been on tiptoes for the past week as a deadline looms for the SEC to approve the first batch of some of the 13 applications currently on its table from asset managers including Ark Invest, BlackRock, Fidelity, Grayscale, WisdomTree, Franklin Templeton, and Valkyrie.

In a sign of just how big the market could become, Bloomberg Intelligence analyst Eric Balchunas noted on Monday that Grayscale Investments’ flagship GBTC fund, which its trying to convert into a spot ETF, traded almost a half a billion dollars on Monday.

That’s “more than 99% of the 3000 current ETFs, and reminder that they are bringing a (volume) gun to a knife fight if they launch with everyone else,” Balchunas wrote.

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