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With ETFs, you don't need to be concerned with reserves. I can buy the ETF, go to the market-makers, and ask them to exchange the ETF for either bitcoin, or a c
by lucw 3y ago
With ETFs, you don't need to be concerned with reserves. I can buy the ETF, go to the market-makers, and ask them to exchange the ETF for either bitcoin, or a cash equivalent. If they can't deliver, they're in trouble.
There's a two way arb in ETFs which keeps the price tracking accurate:
- if the ETF trades higher than bitcoin on crypto exchanges: the market makers can simply buy bitcoin on exchange, sell the ETF on traditional exchanges: do this enough and the price difference narrows.
- if the ETF trades lower than bitcoin on crypto exchanges: I can just buy the ETF, ask to redeem to bitcoin and pocket the difference. Sooner or later this price discrepancy goes away.
- latchkey 3y ago> I can just buy the ETF, ask to redeem to bitcoin and pocket the difference. Can only redeem to cash. https://www.etfcentral.com/news/two-important-things-need-know-upcoming-bitcoin-etf https://www.etfcentral.com/news/two-important-things-need-kn...
- deleted 3y ago[deleted]
- tesdinger 3y ago> If they can't deliver, they're in trouble How are you protected against losing your investment if they can not deliver? > Price tracking Does Bitcoin support a high enough frequency of transactions for long enough to make this possible for years into the future? Does it not become too hard to mine at some point?