BTC Price Index and Live Chart – CoinDesk”>(BTC).

This would force ETFs to scramble in order to meet the demand of mom-and-pop (grandma and grandpa too) investors. Grayscale Bitcoin Trust is the current largest bitcoin investment vehicle. It has assets worth $26 billion, which gives an idea of how much demand there will be for BTC before the floodgates are opened.

Does the industry have the capacity to handle the challenge? According to key players in the market, bitcoin trading is liquid and can easily accommodate large purchases by issuers such as BlackRock, Grayscale Fidelity, Galaxy/Invesco, Fidelity, and Fidelity.

Two key players are needed to ensure that large amounts of capital can be traded efficiently: trading firms known as authorized participants (APs), and market makers.

APs can create and redeem ETFs, directing money from investors into and out of a fund. While this may seem mundane, it is a crucial part of ensuring that the price of an ETF stays closely tied to the value of its underlying holdings. Grayscale’s trust does not allow shares to be redeemed. This can cause an oversupply, which will put downward pressure on the price of trust shares. In fact, in recent years, the trust’s value has fallen below its so called net asset value – which is why Grayscale wants it to become an ETF.

Market makers are needed to fill the role of APs in the secondary market. This is the place where the majority of trading takes place, such as on the exchanges. Market makers take on the role of APs by purchasing ETF shares from others when they want to sell them and vice versa. They can make money by trading in order to bring prices back into line if they are out of balance. Market makers can also act as the AP in some situations.

JPMorgan Chase Jane Street Cantor Fitzgerald are three of the largest Wall Street firms that have agreed to act as agents for bitcoin ETFs. Other firms are also likely to follow.

The list of Authorized Participants (APs), as made public by ETF issuers. Source: SEC filings

Sources: Goldman Sachs is eyeing a Bitcoin ETF role via BlackRock and Grayscale.

Trading firm DRW has become one of the largest liquidity providers in the industry. Cumberland DRW’s crypto division has been preparing to launch bitcoin ETFs. It onboards issuers, sources bitcoin and ensures that it is ready for when APs place orders.

The market can handle billions of dollars worth of bitcoin trading. Traders are confident that the market will be able to absorb such a volume.

Rob Strebel said, “If there’s demand, then there will be supply,” in an interview. I would be surprised if issuers or regulators allowed this product to launch without being confident that it could source liquidity. It’s in the best interests of everyone to have liquidities lined up. I am confident that we will be able provide the liquidity needed.

Investors like ETFs because they are relatively accessible. Customers in the U.S. can use conventional brokerage accounts to buy any of the thousands ETFs and stocks listed across the country. A bitcoin ETF is just as easy to buy as Apple’s stock.

A second selling point is that they tend to closely follow the value of the assets they own. Gold ETFs for example, move closely in line with the gold price they own. How? How?

Bitcoin market is booming

CoinMarketCap.com analysis by CoinDesk shows that daily bitcoin trading on major exchanges has averaged around $22 billion over the last 45 days. However, there have also been peaks of up to $40 billion. Observers think that’s sufficient to meet the demand of bitcoin ETF issuers.

Laurent Kssis (former managing director of 21Shares and director at CEC Capital) said in an interview that the market could absorb this new demand.

She added that, while the new money could be positive for the overall market health, it’s unclear if it will have any impact on the bitcoin price. This would depend on demand for the ETF, and how quickly it arrives.

She said that not all ETFs would get the same kind of traction. “I am convinced that the investment demand is going to be heavily skewed in favor of BlackRock.”

Nick Baker is the editor.