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 insights and analyses on Bitcoin and other digital assets.
Milne’s involvement in the cryptocurrency world extends beyond investment. He is often active on social media platforms, particularly Twitter, where he shares his views on the latest trends, market analyses, and developments in the crypto industry. His commentary and perspectives are followed by many in the cryptocurrency community, making him a respected voice in the field.
Earlier today, Milne took to social media platform X (formerly known as Twitter) to address and dispel widespread FUD (Fear, Uncertainty, and Doubt) regarding the potential U.S. spot Bitcoin Exchange-Traded Funds (ETFs), contingent on their approval by the U.S. Securities and Exchange Commission (SEC). His detailed explanation provides clarity on several critical aspects of how these ETFs would function and their impact on the market.
Legal Obligations and Bitcoin Investment
Milne emphasizes that spot ETFs are legally required to invest net inflows directly into Bitcoin. This investment would be managed by a custodian and subjected to full audits, ensuring transparency and regulatory compliance. This structure contrasts with derivative ETFs, where actual Bitcoin may not be involved.
ETF Providers’ Preparation and Role
He notes that ETF providers are preparing for potential 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 inflows and outflows without discretion, meaning their trading activities are dictated solely by these movements, not by their own investment choices.
Involvement of Real Bitcoin
A critical point Milne makes is that only real Bitcoin is involved in these spot ETFs, distinguishing them from derivative ETFs. This involvement of actual Bitcoin adds a layer of authenticity and direct market impact, which Bitcoin derivatives ETFs lack.
Role of Market Makers and Price Efficiency
Market makers (MMs) and other traders play a crucial role in ensuring the ETF’s stock is priced as close to the actual market value of Bitcoin as possible. They do this by trading or arbitraging the ETF’s stock against spot Bitcoin, profiting from any inefficiencies. This mechanism is vital for maintaining the ETF’s market relevance and efficiency.
Performance and Survival of ETFs
Milne points out that a spot Bitcoin ETF’s survival in the market depends on its performance relative to Bitcoin. An ETF that consistently underperforms Bitcoin (before accounting for fees) is likely to fail, as investors would naturally gravitate towards more profitable options.
Impact on GBTC (Grayscale Bitcoin Trust)
Addressing the Grayscale Bitcoin Trust (GBTC), Milne predicts that it would instantly align with its par value following the introduction of a spot Bitcoin ETF. He suggests that the only sellers would be those who previously bought GBTC at a discount and wish to return to self-custody of their Bitcoin holdings. He anticipates that the net effect of such movements would neutralize within one to two working days.
Effect of Simultaneous Selling and Buying
Milne argues that someone selling GBTC and simultaneously buying another Bitcoin investment vehicle, like IBTC, would not significantly impact the market. This is because such actions would essentially be a rotation within the Bitcoin investment ecosystem, not an introduction or removal of capital.
The Transformative Effect of Bitcoin Spot ETFs on Market Dynamics
Later in the day, Milne posited that the introduction of these spot Bitcoin ETFs would significantly shift the market dynamics, increasing the proportion of spot Bitcoin trading compared to derivative volumes that are not backed by actual Bitcoin. This change, according to Milne, would diminish the influence of unbacked derivative trading on the Bitcoin market.
Milne further argued that this shift would make it more challenging to suppress Bitcoin’s price, contrary to what some might assume. He suggested that the increased trading in spot Bitcoin, as opposed to derivatives, would lead to a more robust and less manipulable market. This perspective sheds light on the reasons behind regulatory hesitance, with Milne implying 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 at demystifying these potentially upcoming spot Bitcoin ETFs in the U.S. comes after several well-known Bitcoin maximalists started criticizing these products despite the fact that they have been advocating for mainstream adoption of Bitcoin for years:
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