- US Bitcoin ETFs saw huge demand from investment firms in the first quarter
- Off-chain transactions linked to BTC ETFs have raised eyebrows, but are part of the ‘cash redemption’ feature.
Large institutions responded to this Bitcoin [BTC] ETFs are trending in the first quarter, with holdings worth $10.7 billion, according to an analysis by Bitwise CIO Matt Hougan.
Hougans facts showed that 944 companies with AUM (assets under management) of more than $100 million disclosed their holdings in US spot BTC ETFs.
Even hedge fund (HF) firms like Steven Cohen’s Point72 Asset Management, Citadel Advisors, Millennium Management, and Elliot Investment Management jumped on the BTC ETF bandwagon.
In particular Millennium Management dominated the HF list with more than $2 billion across four ETFs, according to Bloomberg ETF analyst Eric Balchunas.
Cash redemptions and off-chain transactions of US Bitcoin ETFs
However, as one of the market watchers, Tyler Durden, said: notedmost of the above transactions were carried out off-chain.
“Blackrock can take as much Bitcoin from Coinbase as they want, and the transaction is recorded off-chain.”
However, Dave Weisberger of Coinroutes joked that the ‘off-chain transactions’ are part of the ‘cash redemption’ feature of the US spot BTC ETF products.
“Of course they had to do it that way because of the ‘cash creation/redemption’ that the SEC enforced. The APs cannot ‘touch’ Bitcoin, so MUST perform off-chain transactions.”
Bloomberg ETF analyst James Seyffart echoed Weisberger’s view.
For the uninitiated, the cash redemption or creation feature means that the spot BTC ETF trades can only be settled in cash, regardless of whether one buys or sells the US BTC ETF shares.
However, according to Weisberger, this does not mean that the respective ETF issuers do not have 1:1 backing of the underlying spot BTC.
“Means nothing regarding the ETF positions. It does not change the fact that the ETFs, per their approved charter, MUST have the full backing of Bitcoin with the custodian for all SETTLED shares.”
Intelligence data providers like Arkham track most US spot BTC ETF issuer wallets. However, the aforementioned off-chain transactions derail transparency, a key ethos of blockchain.
Most industry figures have argued that in-kind redemptions and creations could have been better, more efficient and more transparent. That’s what you get with Hong Kong’s recently launched spot ETFs.
The ‘in-kind’ redemption refers to the ability to settle transactions using the underlying asset, whether it is BTC or BTC Ethereum [ETH]. So instead of cash, the ETF shares are traded using the underlying crypto assets.
Such on-chain transactions are efficient and transparent as they are traceable using various blockchain explorers Etherscan.
The US spot BTC ETFs could have enjoyed more transparency thanks to the ‘in-kind’ feature; however, the off-chain transaction will proceed as part of the SEC guidelines.