Opinion: If only cash subscriptions and redemptions are allowed, most of the advantages of the ETF structure would be lost.
BitMEX Research stated on social media that the operation of ETFs is as follows: If an ETF trades at a premium, which is usually caused by more buyers than sellers, then Authorized Participants (APs) are motivated to purchase related instruments and deliver them to the issuer in exchange for new units of the ETF. Then, because the ETF trades at a premium, APs can sell these new units on the market for profit. If an ETF trades at a discount, then it's just the opposite. APs buy units of the ETF on the market and provide them to issuers in return for relevant assets. They then sell these assets for profit since they were traded at a discounted price.
Most importantly, there should be multiple competing APs. This ensures that products can handle large capital flows and have lower tracking errors. If only cash subscriptions and redemptions are allowed, most advantages of an ETF structure would be lost. Currently, only issuers can trade Bitcoin on markets making many competitions that make an effective ETF non-existent.
Previously reported was Grayscale submitting revised S-3 documents regarding GBTC conversion or adopting cash creation and redemption.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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