So, when folks sell their ETF shares, do you think the bitcoin price takes a hit?
I doubt it, at least not unless the company behind the ETF starts dumping some of their bitcoin stash. That seems like it would be the case. But yeah, people might panic and sell their personal coins too because of that.
If an ETF provider like BlackRock sees a ton of people bailing on their ETF shares, do you think they’d offload some of their bitcoin as well? And is this something that happens automatically in a quick timeframe?
Share in bitcoin ETF works similar to the normal bank share, the highest share holder controls and have upper hands compare to the lower share holder's since their holdings signified their position and stake in the assets, same will definitely play out in this situation.
If ETF share holder's decide to sell some of their position, it becomes wise for the company offering them that service to buy up their own share to increase their liquidity in the end, so alsobis other holds share in the ETF if they have extra cash flow to buy more instead of selling.
I believe the Bitcoin EFTs didn't take a loan to start their business but rather they invested their own funds because they are out to make more money. Therefore, if EFT shareholders sell their bitcoin, it's an opportunity for Blackrock to buy their bitcoin and add to their own. That will help them from purchasing more bitcoin from outside their company. Don't forget that these ETFs are also buying as they are selling too. They are not just holding customers bitcoin.
In some cases some individual investors will be willing to buy these shares from people who want to sell. The company might decide to take over the shares if they have sufficient financial backing. But they might be forced to sell Bitcoin if that is the ideal means of raising funds to cover the sell off.
This might happen if the company have enough funds to buy up the shares. Some companies might be forced to give public share offers or take loans to cover up the dump.
It doesn't just happen automatically, that is to say bitcoin price won't just fall simply because bitcoin ETF shares were sold, the response of ETF providers to the sell is what might triggers the fall in price in most case. When investors sell shares of a spot bitcoin ETF, it doesn't mean they have sold bitcoin itself, its mere shares of funds holding bitcoin they sold so the preceding action of the shares provider determines the next move of bitcoin price.
It depends. Blackrock or other firms are not always willing to spend their own money to buy back bitcoin from ETF shareholders. If the market is dumped hard and could fall further, they have no reason to buy back those bitcoins when they have the opportunity to buy them back at a better price later. Or it will depend on shareholder selling pressure, if the selling pressure is too great and exceeds their budget. Blackrock will not be able to buy back and will also have to sell bitcoin into the market to have enough liquidity to pay shareholders.
In short, it will depend on the market situation, the number of ETF shares sold...they will not always buy back.
It should have effect on the market if they are selling their shares I guess blackrock will do.
Look at the chart of net inflows; you would notice the negative or red volume net inflow. It affects the price of BTC.
Source: https://www.sosovalue.com/assets/etf/us-btc-spot
As you can see, selling their shares reduces net inflows and lowers the BTC price.
The way it works is as follows.
When the ETF first launched, if someone wanted to buy Bitcoin on the ETF, they would place an order and Blackrock would have to get those actual bitcoins from their custody provider which was Coinbase. So the AUM (assets under management) goes up.
When that person sells, 2 things can happen. If they sell and someone else buys those shares, then the AUM stays the same and they don't sell those Bitcoins. But if there is no buyer, then Blackrock will have to buy those shares back and reduce the AUM and they would have to send the bitcoins back to Coinbase and it would eventually get sold on the open market.
Technically it should be like that because they are only limited to intermediaries in the purchase of Bitcoin, I think it is impossible for them to hold if there are no buyers, they will continue to give if there are many requests or (up to the limit of the availability of ETF and the number of bitcoin they have, and vice versa).
The simple word is that they only facilitate instead of investing, surely they make sales when the institution who buys ETF is selling.
Check very well and you'll understand that the financial management organizations of the Etf is only more influential in the bitcoin market with the corporation of individual investors.
The high trading power of the institutional investors may generate it resources from the individuals Etf shares and when you look at those individual investment trading powers, it might appear small not to influence the market price but when they're accumulated in bulk then their trading powers becomes Influential
Invariably there's no such power of the Instituional investors without the partnership of individuals so, if the investors have to sell their Etf shares in mass then it'll definitely fall the price of bitcoin unless there's a few numbers of them to sell.
If by "normal bank share" you mean share in ownership of a bank, then no, they are not at all similar. Buying into spot ETF does not give you any control over it, it's essentially just a wrapper, you hold BTC through a middleman.
As for the OP's question, yes, the price of ETFs and BTC are tightly correlated.
Essentially, shares in ETFs can be redeemed (usually in cash, not bitcoins, but it doesn't matter). The redemption can usually be done by "authorised participants", not by individual holders.
So if the price of a spot ETF was lagging compared to actual bitcoin (e.g. BTC is $100k, while ETF is $50k), then an arbitrage mechanism would kick in, and authorised participants would redeem their shares, forcing an ETF issuer/manager to sell bitcoins, and they could then buy more cheap ETF shares. Rinse and repeat until the prices of both are aligned.
And if the demand for an ETF is high to the point that its value exceeds that of the bitcoins held, the ETF issuer would then purchase more bitcoins.
Essentially speaking, the prices might get misaligned a little bit from time to time, but they are correlated.
That isn't "exactly" how it works. When people buy bitcoin ETF shares, whoever manages it, should have how much it backs.
So let's say Blackrock has Bitcoin ETF, and around the world people paid them 100 million dollars to get bitcoins. That means, Blackrock needs to have 100 million dollars worth of bitcoin, so that it would be backed 1to1 ratio.
But nobody stops them from having more, if they ever want to, they can have 200 million worth. That means, if I sell, it's just mine, and the price doesn't go down right away, only after blackrock does sell it goes down.
That is the biggest difference than the direct market trading, not really a huge deal because it happens eventually, but it is still not quick enough, and you can react.
The real BTC only sold to the market if there's a redeem of large blocks of ETF shares by large financial institutions (authorized participants).
If it's retailer buying and selling to each other in the market, the BTC won't move. Most of BTC is in custody of 3rd party, most likely in an offline cold storage.
Although with the retailers selling the BTC supposedly not being sold to match redemption, there's always quirky people shorting on exchange for some reason to position themselves as a result price matches.
Thats exactly the point those who buy ETF Shares are only buying a representation of bitcoin without owning the real bitcoin itself so when they sell, its just that representative thats been sold the real bitcoin lies still in the ETF providers portfolio. Where itll impact the market price is when a lot of investors sell their shares, the ETF provider will now be forced to sell part of their bitcoin holdings to balance the redemption demand. This is what could actually impact the market price.
This means that mechanically, Blackrock is also selling if ETF holders are selling, as this can be confirmed by the data (at least).
I just want to question the person who bought it, because I think it's much better to buy it yourself on a crypto exchange and store it securely than to buy an ETF.
So the company here acts like a broker and then there is only a trade-off that occurs, so there is no need for cover-up anymore. Maybe if there is no demand from individual investors, then yeah, that is the time for the same company to just buy what is offered by their investors. If they lack in personal money, this is where they can sell their BTC holdings to support the transaction. Another one would be is they will take out a loan, just like what is also said on the second quote.
I also think that the BTC ETF is backed by a real BTC. So ETF provider like Blackrock won't just sell some parts of their BTC but they can as well sell massive of it, if massive of ETF shares are also being sold. And yeah, I think it can work automatically too but it can also work manually since this is like centralized.
No. Of course not. If you mean those who bought bitcoin from ETF then my answer is no because they do not own most of bitcoin and it is not like they will all collectively decide to sell bitcoin at the same time.
I do not think so. They will most likely try to appear confident as to not alarm other investors and convince them to keep holding and buying bitcoin despite others' decisions.
The ETF is backed by real BTC and if Blackrock (if were talking about IBIT) doesnt buy what is being sold for the ETF then they do have to sell it or settle with Coinbase after 48 hours.
At some point well see massive BTC selloffs from ETF selling, but right now institutions are picking up any excess selling.
Don't we think this will only be effective if the institution is willing to buy at the readiness or the shareholders or if they have the funds to buy from those ETF shareholders on their move to sell?
How about in a scenario where there is going to be a massive sales of the shares above what the institution can afford? Because I believe if institutions have so much money to buy off those Bitcoins regardless how much just to leverage liquidation that that would not strive volatility that would cause their holdings to drop in values, they could as well had used those funds to buy more Bitcoins without waiting for shareholders to buy in maximizing their portfolios.
Yes, in many cases there is a kind of self-fulfilling prophecy or snowball effect, but it should not be taken as an exact science because I've witnessed clear cases when many people thought that the price would fall following a big ETF selloff, and see an eventual change upwards in the trend, for everyone's surprise, because of some unexpectedly positive news arising or because of institutions picking up the excess selling, like mentioned above.
I guess that the moral is that there is a clear connection between Bitcoin ETF selloff and Bitcoin's price decline, but not as linear as we could think due to distorting factors.