The Next Leg of the Crypto Trade

Buyside Trading Mandates

ETF Authorized Participant Creation/Redemption

Capital Efficiency

Price Discovery & Liquidity

The Basis Trade

Implications for Crypto Market Structure

  1. Investors trade ETFs to benefit from their capital efficiency, leverage, price discovery, fair access, transparent fees, and availability through traditional brokerage channels — including the entrance of new mandate-constrained investors who can’t invest in spot.
  2. Market makers and APs concentrate their liquidity provision to ETFs where the largest demand is accumulating.
  3. Market makers and APs hedge their ETF liquidity in the futures markets, enabling them to quote tighter spreads and greater depth in the ETFs.
  4. Arbitrage opportunities from the basis trade between ETFs and futures drive further market activity in both.
  5. Investors further benefit from the resulting tighter spreads and increased liquidity driving more demand for the ETFs.
  6. Repeat.

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