His detailed explanation provides clarity on several critical aspects of how these ETFs would work and their impact on the market.
Alister Milne is a well-known figure in the cryptocurrency and blockchain community, primarily recognized for his role as an investor and entrepreneur.
Milne is the chief investment officer of the Digital Currency Fund, part of the Altana Wealth investment group. He has been actively involved in the crypto space for several years and is known for his knowledge and analysis on Bitcoin and other digital assets.
Milne’s involvement in the world of cryptocurrencies goes beyond investing. He is often active on social media platforms, particularly Twitter, where he shares his views on the latest trends, market analysis, and developments in the crypto industry.
Many in the cryptocurrency community follow his comments and perspectives, making him a respected voice in the field. Earlier today, Milne took to social media platform .US, subject to its approval by the United States Securities and Exchange Commission (SEC).
Legal Obligations and Investment in Bitcoin
Milne emphasizes that spot ETFs are legally required to invest net inflows directly into Bitcoin. This investment would be managed by a custodian and subject to full audits, ensuring transparency and regulatory compliance. This structure is in contrast to derivative ETFs, where actual Bitcoin may not be involved.
Preparation and Role of ETF Providers
He notes that ETF providers are preparing for potential capital inflows by “seeding” their ETFs. This involves having cash ready on exchanges to purchase Bitcoin when inflows occur. Milne clarifies that ETF providers must act on entries and exits without discretion, meaning that their trading activities are dictated solely by these movements, not by their own investment choices.
Real Bitcoin Share
A critical point that Milne makes is that only real Bitcoin is involved in these spot ETFs, which distinguishes them from derivative ETFs. This involvement of real Bitcoin adds a layer of authenticity and direct market impact that Bitcoin derivative ETFs lack.
Role of Market Makers and Pricing Efficiency
Market makers (MMs) and other traders play a crucial role in ensuring that the ETF share price is as close as possible to the true market value of Bitcoin. They do this by trading or arbitraging the ETF shares against spot Bitcoin, profiting from any inefficiencies. This mechanism is vital to maintaining the relevance and efficiency of the ETF market.
The Transformative Effect of Bitcoin Spot ETFs on Market Dynamics
Later that same day, Milne posited that the introduction of the spot Bitcoin ETFs would significantly change market dynamics, increasing the proportion of spot Bitcoin trading compared to volumes of derivatives that are not backed by actual Bitcoin. This change, according to Milne, would decrease the influence of unbacked derivatives trading on the Bitcoin market.
Milne further argued that this change would make it more difficult to suppress the price of Bitcoin, contrary to what some might assume. He suggested that increasing spot Bitcoin trading, as opposed to derivatives, would lead to a more robust and less manipulable market.
This perspective sheds light on the reasons behind the regulatory hesitancy, with Milne hinting that entities like the SEC were wary of spot ETFs precisely because they would lead to a more resilient and less controllable Bitcoin market.
Milne’s attempt to demystify these potentially future Bitcoin ETFs in the US comes after several well-known Bitcoin maximalists began criticizing these products even though they have been advocating for widespread Bitcoin adoption for years:
By Audy Castaneda
