Yesterday was the first day that the first US Bitcoin (BTC) exchange traded fund (ETF) was negotiable. The performance of the stock market on the first day exceeded all expectations, as you can read in this article. Never before has an ETF seen such high “natural” volume on its first day. But does this also have a direct positive effect on the bitcoin price?
The first US bitcoin-linked ETF looks a little different than you might think. Typically, an ETF tracks the price of an underlying product. This can be done in various ways. The most direct way is a bitcoin ETF that actually buys and stores the bitcoins. This then creates direct buying pressure on the spot market.
But the ETF that went live yesterday is a bitcoin futures ETF, meaning that the fund does not hold bitcoins, but futures contracts. Is there a direct effect on the bitcoin price? Although the connection with bitcoin itself may be less direct, it nevertheless has a positive effect on the price. Three Arrows Capital co-founder and CEO Su Zhu said after the Bitcoin ETF’s first day of trading that 8,800 bitcoins were “swallowed up” on the first day:
Proshares #bitcoin futures ETF has casually just slurped 8.8k $BTC or so on day1 https://t.co/WQGO7wA4Uq
— Zhu Su 🔺 (@zhusu) October 19, 2021
In response to the tweet, one of his followers wrote: “That’s misleading, they don’t actually buy bitcoins, just fake paper futures.” But that statement isn’t quite right either, because:
“Who do you think sold all these futures to BITO [Naam van ETF] holders? Market makers must maintain their position to remain delta neutral. The buying pressure of futures inevitably affects the spot market.”
Who do you think sold all these futures to BITO holders ? Market makers have to hold spot to remain delta neutral. Futures buy pressure inevitably affects spot market
— oashito (@imoashito) October 19, 2021
In any case, the positive developments of the BITO bitcoin futures ETF have a positive effect on the bitcoin price. And with bitcoin still close by all time high (ATH), is a new record price still in it!