Kaiko Research Highlights Bitcoin ETFs’ Significant Impact on Spot Market Structure and Liquidity

By Aaron Feuerstein June 28, 2024 In Bitcoin, ETF, JPMorgan
Btc Bitcoin metal coin and sign showing ETF - Generative AI
  • Spot BTC ETFs have increased trade volumes, especially at US market close, aligning with NAV calculations.
  • Authorised participants like JP Morgan enhance liquidity, aligning ETF prices with Bitcoin through arbitrage.
  • Recent ETF successes set a positive framework for future crypto-related fund applications.

In a recent deep dive – aptly named so – research analysts at Kaiko discussed the impact spot exchange-traded funds (ETFs) for Bitcoin have had. Lessons that are likely interesting for those looking into the recent Spot Ethereum ETF filings and the just filed S-1 for a Spot Solana ETF by VanEck.

Related: Ripple CEO Warns: Gary Gensler’s Policies Could Jeopardise Biden’s Re-election Chances

Kaiko said in a note to investors that their research indicates trade volumes on crypto exchanges increased, particularly around the US market close, following the approval of spot BTC ETFs in the US.

This surge in activity between 3 pm and 4 pm New York time correlates with the time issuers calculate the ETFs’ net asset value (NAV) based on benchmark fixing prices, the analysts added.


Funds Have Led to Increased Trading Volume

Bitcoin benchmarks, which set the daily USD index price of BTC based on data from key exchanges, play a crucial role in BTC ETFs.

These benchmarks directly influence ETF operations, as trading, share creation, and redemption within ETFs are timed to align with the benchmark fixing prices. This synchronisation enhances spot Bitcoin liquidity, especially during the ETF benchmark fixing window between 3 pm and 4 pm New York time, expectedly boosting trading volumes during this period, Kaiko explained.

Not surprisingly, trading volumes of BTC have markedly increased following the approval of the new funds. Kaiko said the increase in trading is mainly focussed around the US, causing improved liquidity and price discovery.

BTC daily volume, source: Kaiko

ETFs Cause Improved Liquidity and Market Depth

The fund approval and improved liquidity has enabled the market to better absorb large orders and handle fluctuations.

Kaiko said this enhancement is largely due to the role of authorised participants like JP Morgan, DRW, and Jane Street, who help maintain ETF liquidity by creating or redeeming shares daily. These participants have effectively minimised price discrepancies between ETF shares and actual Bitcoin prices through arbitrage.

Notably, the first quarter saw a marked increase in the average daily BTC 1% market depth, especially on the institutional-focused LMAX exchange, Kaiko added.

BTC market depth, source: Kaiko

Market observers are taking note of recent developments around Ether and Solana fund applications. Apart from the AI narrative and memecoins, ETFs are the hottest topic right now.

Related: Coinbase Launches Legal Battle Against SEC and FDIC, Defending Crypto Industry’s Future

Overall, the successful implementation and operation of current crypto ETFs, such as those tracking Bitcoin, provide a framework and a set of expectations for how future ETFs might perform, influencing everything from market dynamics to regulatory decisions.

Aaron Feuerstein

Aaron Feuerstein

Aaron Feuerstein is a freelance writer based in Melbourne. His focus is on decentralised finance and the regulatory space surrounding blockchain. He holds a Master's in Accounting. When he is not studying the latest legal case, he enjoys his time as a modest but eager hobby cook.

You may also like