Bitcoin’s recent price rally has sparked debate over the role of market makers in spot Bitcoin ETFs. Analysts clarify that authorized participants have regulatory exemptions allowing them to create or redeem ETF shares without forcing immediate Bitcoin purchases on public exchanges. This can decouple ETF inflows from direct spot market pressure, shifting some price discovery to derivatives markets.
Bitcoin’s recent rally reignited online speculation about Wall Street market makers’ influence on spot Bitcoin exchange-traded funds. Posts circulating linked the price move to legal action involving trading firm Jane Street, suggesting it altered market behavior. Analysts, however, said this focus obscures the standard mechanics underlying how these ETFs operate.
The creation and redemption process allows authorized participants to meet ETF demand without necessarily buying or selling Bitcoin on public exchanges. Jeff Park, an adviser to ETF issuer Bitwise, outlined how regulatory exemptions create a “grey window” where ETF share creation and spot market transactions are not tightly linked in time. Consequently, ETF inflows do not always translate into immediate spot buying pressure.
Ryan McMillin of Merkle Tree Capital explained that incentives often favor derivatives over spot markets. He said authorized participants may hedge exposure using futures while earning carry from the basis, a condition known as contango. “ETF assets under management balloons without forcing exchange buys, muting rallies below key levels where hype would otherwise push prices higher in a flywheel,” McMillin said.
He added that adjustments to futures positions can later amplify price swings, contributing to sharp pullbacks. Both analysts stressed this behavior is legal and widespread across ETF market makers. They said it highlights how Bitcoin’s price discovery is increasingly shaped by institutional trading venues like futures markets.
