Spot Bitcoin ETF Premiums/Discounts—Time to Check VAR

Last week, I was very excited to receive a request for this blog to be published for our international readers. Although my focus has typically been on the US ETF market, I have no doubt that many of my ETF comments and observations would resonate with a global audience. In fact, I had some fantastic meetings in London and Frankfurt recently. The giant caveat is that our international marketing teams thought my analogies were maybe a little too US-centric, that somehow there may be a world where readers would not appreciate or care about the Detroit Lions.

Rest assured that my love of sports knows no bounds! I am also a huge fan of the Chelsea Football Club (please save comments about this season for another day) and I follow the English Premier League very closely. Sadly, one of the main stories of this season beyond the fantastic title race is VAR (video assistant referee). Even before I began my side career as a high school soccer (“football”) referee, I was both fascinated and frustrated with VAR.

Like instant replay in the NFL, sometimes as a fan I need to temper my celebration as the video official reviews a scored goal or a potential handball in the penalty box. Staying with handballs, I feel I had to relearn what that term even means! When I was young, the definition seemed quite simple—if the soccer ball hit a player’s hand, then that was a foul. Now? Did the ball hit the upper or lower arm? Was the defender purposely making themselves bigger? Was the player in an unnatural or justifiable position? The result is frustrated fans every Monday morning.

I feel there has been a similar evolution when it comes to defining ETF premium/discounts, especially as I read some of the recent commentary on the problems with spot bitcoin ETF discounts during the recent bitcoin selloff. As a reminder, an ETF’s premium or discount is calculated by measuring the percent change between the fund’s net asset value (NAV) and the ETF’s closing price on exchange. This metric is often a good gauge to show that ETF arbitrage is functioning properly.