VanEck & Coinbase Execs On Spike In Borrowing For Bitcoin ETFs

Executives from VanEck and Coinbase are raising alarms over the U.S. Securities and Exchange Commission’s (SEC) handling of spot Bitcoin ETFs

The Securities and Exchange Commission’s (SEC) handling of spot Bitcoin exchange-traded funds (ETFs) has come under scrutiny, with executives from VanEck and Coinbase highlighting the increased borrowing costs as a direct consequence.

According to these industry leaders, the SEC’s refusal to allow in-kind creation and redemption of Spot BTC ETFs has created inefficiencies. This has forced market participants to take on significant capital costs.

VanEck & Coinbase Execs On Spike In Borrowing For Bitcoin ETFs

Matthew Sigel, Head of Digital Assets Research at VanEck, a prominent player in the BTC ETF market, has been vocal about the challenges brought on by the SEC’s rules.

“The SEC’s refusal to allow the in-kind creation and redemption of spot Bitcoin ETFs forces market participants to pre-fund many of their Bitcoin ETF-related transactions,” Sigel said.

Furthermore, he emphasized that this requirement has made the ETF process more capital-intensive and expensive than necessary. Sigel believes that if the SEC were to approve in-kind transactions, trading spreads would tighten. Also, the discount to net asset value (NAV) of Bitcoin ETFs would narrow, eventually benefiting investors.

Coinbase, a prominent crypto exchange, has also been navigating the challenges posed by the SEC’s framework. Matt Boyd, Coinbase’s Head of Prime Finance, highlighted the financial strain caused by the settlement mismatch between cash and Bitcoin transactions.

“Our financing costs are not particularly expensive. They are similar to emerging market financing costs. Anyone allowing a purchase prior to receiving cash is providing a loan and is getting compensated for that in some way,” Boyd explained, according to a report by Risk.Net.

The mismatch stems from the differing settlement cycles for cash and cryptocurrencies. Bitcoin transactions typically settle on the same day. However, the cash required for these trades, provided by authorized participants (APs) such as banks and high-frequency trading firms, follows a T+1 cycle. Hence, this discrepancy forces ETF managers to either pre-fund Bitcoin purchases from their own balance sheets or seek short-term loans from exchanges like Coinbase.

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