Coinbase researcher: Spot ETF launch could lead to “compliant” BTC shortage and harm basis trading strategies

Coinbase researchers say the launch of a physical Bitcoin ETF in the United States could lead to a shortage of “regulated” Bitcoin and harm a popular trading strategy. We are less than three weeks away from the possible approval of a Bitcoin spot ETF, and many believe trading will begin soon after. However, Coinbase’s head of institutional research David Duong and senior sales trader Greg Sutton said there are two key risks that may arise once these ETFs begin trading. In a Dec. 19 podcast, Duong and Sutton said that launching a spot Bitcoin ETF could cause problems for institutions purchasing BTC, as issuers would need to purchase enough Bitcoin to hold in the ETF. Sutton said the second risk involves a more popular institutional trading strategy known as “basis trading,” which refers to taking advantage of the price difference between the spot price of Bitcoin and Bitcoin futures contracts. According to data from Velo, potential profits from basis trading have surged by 20% in the past two weeks as trading volumes in Bitcoin spot and futures contracts surged. However, as institutional investors increasingly invest directly in Bitcoin (via spot ETF products), the basis will shrink, making the trade significantly less profitable. (Cointelegraph)