Spot Bitcoin Listed in the United States Exchange-traded funds (ETFs) are back in demand, with investors pouring $1.4 billion into them in the past five days. Despite this, Bitcoin’s spot price remains unstable.
Analysts at cryptocurrency exchange Bitfinex said that aside from escalating geopolitical tensions and surging oil prices, one possible explanation is the mechanics of the ETF itself.
Analysts explained in an email to CoinDesk that ETF inflows may be over-interpreted as immediate spot demand, noting that ETF structures often create a lag between inflows and actual Bitcoin purchases. In other words, bullish pressure on prices may take effect with a lag, causing prices to get stuck.
An ETF is a collective investment vehicle that holds assets such as Bitcoin and issues shares that trade on a stock exchange like ordinary stocks. The fund aims to closely track the value of the underlying assets, with each share representing a claim on the underlying assets. In January 2024, a total of 11 spot ETFs were listed in the United States. Since then, cumulative inflows into these funds have exceeded $55 billion.
Shares are created and redeemed by professional financial institutions such as authorized participants (APs), large banks, market makers, or broker-dealers. When demand for an ETF rises, its price can be higher than the fund’s net asset value, prompting AP to issue new shares, sell them to buyers, and close the price gap.
Typically, APs sell stocks they don’t already own, a process called shorting. In the general market, short-selling rules require most investors to borrow shares first, but regulators allow AP to short ETF shares almost immediately and buy the corresponding Bitcoin hours later or until the next business day, depending on whether the creation is cash or physical.
Therefore, ETF demand is likely to rise even if actual BTC purchases on the spot market are delayed. When these actual Bitcoin purchases occur, they are often offset by other selling pressure elsewhere in the market, which helps mitigate the bullish impact on the price and keeps Bitcoin trading within a tighter range.
Bitfinex analysts said this may help explain the recent surge in capital inflows and lackluster price action.
“The result is ETF growth, but actual BTC prices are not rising because there is no buying in the spot market. This could leave BTC prices feeling ‘trapped’ or suppressed,” the analyst said.
The analyst added: “Generally speaking, this would not have a significant impact on the market, but during periods of severe market disruption, the gap between ETF demand and actual BTC spot purchases (and vice versa) could create short-term market mispricing.”
