TechFlow news: BitMEX Research stated on X that ETFs operate as follows: If an ETF trades at a premium, typically caused by more buyers than sellers, authorized participants (APs) are incentivized to purchase the underlying assets and deliver them to the issuer in exchange for new ETF units. Since the ETF is trading at a premium, APs can sell these new ETF units in the market and profit. If the ETF trades at a discount, the opposite occurs.
APs buy ETF units in the market, return them to the issuer, and receive the underlying assets. They then sell those underlying assets for a profit, as the product is trading at a discount. Crucially, there should be multiple competing APs. This ensures the product can handle large capital flows and maintains low tracking error.
If only cash-based creation and redemption are allowed, most advantages of the ETF structure would be lost.
Now, only issuers can buy and sell bitcoin in the market, eliminating much of the competition that makes ETFs effective.
