That's fine. But does anyone actually think the world BTC price is being manipulated? And if so, why is an ETF on a Future on Spot Ok, but a ETF direct on spot is not? Allowing one but not the other seems like a tickbox exercise no?
> That's fine. But does anyone actually think the world BTC price is being manipulated?
Hum, yes, I mean, it's not even a matter of believing it or not, it's well known fact. We had at least 5 BTC flashcrashes in 2021, caused by massive sell-off from individual holders, which often trace back to crypto funds.
Bear with me though, I'm not saying the overall BTC price is manipulated _all the time_. What I'm saying is that there are a _lot_ of individual BTC spot markets, with very different liquidity, market makers, and participants.
Some players have historically manipulated BTC in the past, and will likely continue in the future. The reason of these sell-off are open to speculation, but are often attributed to tentatives of triggering short squeezes by mass liquidation. Or just triggering a massive buy back from others stop losses. etc
These types of manipulations are possible only when an individual holder can have a significant market impact because of the low liquidity present in the book, or if market makers have loose liquidity constraints. Both are true for pretty much all BTC spot markets.
The future market is largely unaffected since there's so much more liquidity on BTC futures, no holder could dry it out in an instant. Also, in the case of CME futures, the participants are regulated, so market manipulation is pretty much out of reach anyway and would instantly trigger an investigation.
At the time of this writing, there's just ~$700k on the top of the spot BTC/USDT book of Binance, while there's around $6M on the perpetual future book. Imagine how dry the fiat USD book would be. Anyone with $500k worth of BTC would crash it at will.
> does anyone actually think the world BTC price is being manipulated?
There are tonnes of papers showing it was in specific cases [1][2]. In the general case, we simply don’t have the data. (For example, everything connected to Tether.)
> why is an ETF on a Future on Spot Ok, but a ETF direct on spot is not?
Futures are a punt to the CFTC. Also, the failure mode of a futures-based ETF is cleaner.
A leveraged ETF based on futures will price truly to the futures even if the futures’ prices lose meaning. (The central clearinghouse for future ensures that while the price may be meaningless, there will be an agreed-upon value for price.) An ETF based on spot will need to be frozen if a handful of exchanges go under and the price of Bitcoin starts varying by 90% depending on which exchange one is looking at.
Such an event will also wreak havoc on the futures market. But the future-based ETF will continue settling against that broken market in a way the spot ETF will be unable to. That means everyone who borrowed or lent or wrote derivatives on or pledged collateral with their ETF units will be able to happily continue on their way. That’s market stability, something crypto has so far not prioritised.
Which APs can’t do if the spot price is untrustworthy.