Bitcoin ETFs close with largest discounts due to crypto plunge

The largest spot-Bitcoin exchange-traded funds (ETFs) closed today with significant discounts to their underlying asset values, the biggest since their inception.

This disparity emerged when the cryptocurrency plunged to its lowest in two months, consequently affecting the ETFs’ Bitcoin value tracking. The iShares Bitcoin Trust, a US$16 billion fund, closed approximately 1.7% below its net asset value. Other funds like the US$9 billion Fidelity Wise Origin Bitcoin Fund, the US$2.5 billion ARK 21Shares Bitcoin ETF, and the US$2 billion Bitwise Bitcoin ETF also closed with over 1.4% discounts.

Despite the unusual occurrence, Bitwise’s chief investment officer, Matt Hougan, downplayed the situation. He deemed it more an accounting quirk than a real issue, attributing the discrepancy to the fund’s method of tracking Bitcoin value.

Bitcoin ETFs calculate net-asset value using a 60-minute time-weighted average price for Bitcoin, leading to potential disparities between market prices and NAV during significant price fluctuations in the last trading hour. Matt advised that a better measure of tracking is to chart a Bitcoin ETF versus the spot price of Bitcoin.

An ETF analyst at Bloomberg Intelligence, James Seyffart, voiced his concern over the discounts but noted that it would have been more alarming if the discounts were exclusive to one fund. The end of the month, a typical period for portfolio rebalancing, saw heavy selling pressure on the largest Bitcoin ETFs, peaking around the stock market’s 4pm closing auction, said Bitwise President Teddy Fusaro.

“We expect such dislocations during periods of high volatility to be common and brief, often occurring in the last few minutes of trading.”

Trading method

He noted that ETFs were trading within a few basis points of their estimated NAV during a session yesterday, May 1, and expected them to trade at slight premiums and discounts, depending on market conditions and buying or selling activity in the marketplace.

Notably, Bitcoin’s volatility presents more intricate issues to ETF investors than those focusing on conventional financial assets. However, this volatility also opens profit opportunities for specialised trading firms known as authorised participants, who help align fund prices with their net asset values, said the CEO of Virtu Financial Inc., Douglas A. Cifu.

“We remain confident that the inherent underlying volatility of crypto as an asset class will drive sustained elevated opportunities in crypto ETFs.”

Although the ETFs’ launch exceeded fund flow expectations, Bitcoin’s price has historically been affected by the macroeconomic environment.

The Federal Reserve’s potential delay in rate cuts, expected to be announced after a policy meeting on Wednesday, could pose a challenging backdrop for speculative assets like digital tokens. Mohit Bajaj, director of ETFs at WallachBeth Capital, stated that if Bitcoin continues to slide, the discount could persist, reported Bangkok Post.