- U.S. Bitcoin ETFs saw massive demand from investment firms in Q1
- Off-chain transactions linked to BTC ETFs have raised eyebrows, but they are part of the ‘cash redemption’ feature.
Large institutions jumped on the Bitcoin [BTC] ETFs trend in Q1, with holdings worth $10.7 billion, according to an analysis by Bitwise CIO Matt Hougan.
Hougan’s data showed that 944 firms with AUM (assets under management) over $100 million revealed holdings in U.S. spot BTC ETFs.
Even hedge fund (HF) firms like Steven Cohen’s Point72 Asset Management, Citadel Advisors, Millennium Management, and Elliot Investment Management jumped on the BTC ETF bandwagon.
In particular, Millennium Management dominated the HF list with over $2 billion across four ETFs, per Bloomberg ETF analyst Eric Balchunas.
U.S. Bitcoin ETFs’ cash redemptions and off-chain transactions
However, as one of the market watchers, Tyler Durden, noted, most of the above transactions were done off-chain.
“Blackrock can take as much Bitcoin as they want from Coinbase, and the transaction is recorded off-chain.”
However, Dave Weisberger of Coinroutes quipped that the ‘off-chain transactions’ are part of the ‘cash redemption’ feature of the U.S. spot BTC ETF products.
“Of course, they had to do it that way because of the “cash creation/redemption” the SEC forced. The APs can’t “touch” spot Bitcoin, so MUST engage in off-chain transactions.”
Bloomberg ETF analyst James Seyffart echoed Weisberger’s take.
For the uninitiated, the cash redemption or creation feature means that the spot BTC ETF transactions can only be settled in cash, whether one is buying or selling the U.S. BTC ETF shares.
However, according to Weisberger, this doesn’t mean the respective ETF issuers don’t have a 1:1 backing of the underlying spot BTC.
“Means nothing with respect to the ETFs holdings. It doesn’t change the fact the ETFs, by their approved charter, MUST hold full backing in spot Bitcoin at the custodian for all SETTLED shares”
Intelligence data providers like Arkham track most of the U.S. spot BTC ETF issuer’s wallets. However, the aforementioned off-chain transactions derail transparency, a key ethos of blockchain.
Most industry figures have argued that ‘in kind’ redemptions and creations could have been better, more efficient, and transparent. That’s what you get with recently launched Hong Kong’s spot ETFs.
The ‘in kind’ redemption refers to the capacity to settle transactions using the underlying asset, whether BTC or Ethereum [ETH]. So, instead of cash, the ETF shares are traded using the underlying crypto assets.
Such on-chain transactions are efficient and transparent because they are traceable using various blockchain explorers like Etherscan.
The U.S. spot BTC ETFs could have enjoyed more transparency from the ‘in kind’ feature; however, the off-chain transaction will continue as part of SEC’s guidelines.
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