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Bitcoin ETF discounts hit record highs after late-day sell-off
(Bloomberg) — The prices of some of the largest Bitcoin spot exchange-traded funds closed Tuesday with their biggest discounts to the value of their underlying assets since their launch.
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While this type of shake-up is typically a troubling sign for an ETF, one issuer’s chief investment officer called it “more of an accounting quirk than a real problem” because of the unusual way the funds track the value of their assets.
The discounts appeared in the closing data after the cryptocurrency fell to its lowest level in two months on Tuesday, including a drop of about 2% between 3 p.m. and 4 p.m. New York time at which average prices are used to track value. of Bitcoin from ETFs. The $16 billion iShares Bitcoin Trust (ticker IBIT) closed about 1.7% below its net asset value on Tuesday – the biggest disruption since it began trading in January, according to data compiled by Bloomberg. The $9 billion Fidelity Wise Origin Bitcoin Fund (FBTC) saw a 1.1% discount, while the $2.5 billion ARK 21Shares Bitcoin ETF (ARKB) and Bitwise Bitcoin ETF (BITB ) of $2 billion both closed with discounts of over 1.4%, also the largest. recorded for each.
“It’s not very pretty,” said James Seyffart, an ETF analyst at Bloomberg Intelligence, adding that it would have been more concerning if the cuts had been limited to a single fund. “It’s a bit unusual in that we’ve seen bonuses and discounts in the range of -1% to +1%, and that number is larger. But it’s not revolutionary.
Read: Bitcoin Hits Two-Month Low After Worst Period Since FTX Crash
Tuesday was the last day of the month, a usual time for investors to rebalance their portfolios, particularly around the 4 p.m. auction close on the stock market. The largest Bitcoin ETFs saw heavy selling pressure as the stock market closed, peaking in the period leading up to the closing auction, according to Teddy Fusaro, president of Bitwise. ETFs calculate NAV using a 60-minute time-weighted average price for Bitcoin, which may result in differences between market prices and NAV during large price movements during the last hour of trading. the day, as was the case yesterday, he added. .
“We expect such disruptions during periods of high volatility to be common and brief, often occurring during the final minutes of trading,” Fusaro said. Earlier in Wednesday’s trading session, he added: “All ETFs are trading within a few basis points of their estimated net asset value during today’s session.” We expect all of these ETFs to trade at slight premiums and discounts to NAV depending on market conditions and whether there is net buying or selling in the market.
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His colleague Matt Hougan, chief investment officer at Bitwise, wrote in an article on reference reference CF, it is “more of an accounting oddity rather than a real problem. A better tracking measure is to plot a Bitcoin ETF against the Bitcoin spot price and see how closely they match.
Still, the cuts highlight how Bitcoin’s volatility can pose more complex problems for ETF investors than funds focused on traditional financial assets. At the same time, volatility creates profitable opportunities for specialized trading firms called authorized participants, responsible for keeping the price of funds in line with their net asset value.
“We remain confident that the underlying volatility inherent in crypto as an asset class will drive elevated and sustained opportunities in crypto ETFs,” said Douglas A. Cifu, CEO of Virtu Financial Inc., during a conference call last week to discuss the company’s earnings, which included record performance in crypto market-making operations.
Fund flow expectations were exceeded after the ETFs launched, as the cohort broke one record after another in the $8 trillion-plus U.S. industry. Hopes remain high that more institutions will adopt spot-Bitcoin ETFs as they establish their track record. But Bitcoin’s price has still been affected by the macroeconomic environment and arguments are growing for the Federal Reserve to signal a delay in rate cuts after officials concluded a policy meeting on Wednesday. This is generally a difficult backdrop for speculative assets such as digital tokens.
“It’s possible that it will remain discounted if Bitcoin continues to fall, but that remains to be seen,” said Mohit Bajaj, director of ETFs at WallachBeth Capital.
–With help from Katie Greifeld and Sunil Jagtiani.
(Updated title and throughout with comments from the ETF issuer.)
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