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Major institutions hold $10.7 billion in U.S. Bitcoin ETFs in Q1, but…

  • Exciting Demand Surge for U.S. Bitcoin ETFs in First Quarter!
  • Off-chain Transactions Spark Interest in BTC ETFs

Wow! The first quarter of the year saw a booming interest in Bitcoin ETFs by major institutions, totaling a staggering $10.7 billion in holdings, as reported by Bitwise CIO Matt Hougan.

Hougan’s data revealed that 944 firms with assets over $100 million had invested in U.S. spot BTC ETFs.

Even big hedge fund players such as Point72 Asset Management, Citadel Advisors, Millennium Management, and Elliot Investment Management were quick to join the BTC ETF frenzy.

Among them, Millennium Management stood out with over $2 billion across four ETFs, as shared by Bloomberg ETF analyst Eric Balchunas.

Insight into U.S. Bitcoin ETFs’ Cash Redemptions and Off-chain Transactions

Speculations arose regarding off-chain transactions related to BTC ETFs, with Tyler Durden pointing out that most transactions occurred off the blockchain.

Blackrock can take as much Bitcoin as they want from Coinbase, and the transaction is recorded off-chain.

Despite this, Dave Weisberger of Coinroutes highlighted that off-chain transactions form a crucial part of the ‘cash redemption’ mechanism in U.S. spot BTC ETF products.

“Of course, they had to do it that way because of the ‘cash creation/redemption’ the SEC forced. The APs can’t ‘touch’ spot Bitcoin, so MUST engage in off-chain transactions.”

Supporting this view, Bloomberg ETF analyst James Seyffart reiterated the significance of off-chain transactions.

For those unfamiliar, the cash redemption or creation feature mandates settling spot BTC ETF transactions in cash, whether buying or selling shares.

However, Weisberger clarified that this provision doesn’t negate the 1:1 backing of the underlying spot BTC by ETF issuers.

“Means nothing with respect to the ETFs holdings. It doesn’t change the fact the ETFs, by their approved charter, MUST hold full backing in spot Bitcoin at the custodian for all SETTLED shares”

Investigative firms like Arkham closely monitor U.S. spot BTC ETF issuers’ wallets. Nevertheless, off-chain dealings compromise the transparency essential to blockchain technology.

Many experts advocate for ‘in kind’ redemptions and creations for enhanced efficiency and transparency, similar to the approach adopted by Hong Kong’s recently launched spot ETFs.

Through ‘in kind’ redemption, transactions utilize the underlying assets like BTC or Ethereum, rather than cash, promoting transparency and efficiency.

These on-chain transactions are easily traceable using blockchain explorers like Etherscan.

While ‘in kind’ redemptions could enhance transparency for U.S. spot BTC ETFs, off-chain transactions will persist following SEC guidelines.

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