Bitcoin ETFs: Market Mechanics Undermine Link Between Inflows and Spot Price Movements

The recent surge in Bitcoin's price has reignited debate over the role of Wall Street market makers in spot Bitcoin exchange-traded funds (ETFs). Analysts and experts have pointed out that the creation and redemption process of ETF shares allows institutional middlemen to meet demand without immediately buying or selling Bitcoin on public exchanges.

This process, which is legal and widespread across ETF market makers, can shift price discovery toward futures markets during periods of heavy institutional flow. According to Jeff Park, chief investment officer at ProCap, this 'grey window' in the market can create a disconnect between ETF inflows and spot price movements.

Ryan McMillin, chief investment officer at crypto fund manager Merkle Tree Capital, added that the structure also creates incentives that favour derivatives over spot markets. He noted that authorized participants may hedge exposure using futures while earning carry from the basis, which can mute rallies below key levels.