If you are buying BTC ETFs, look before you leap. Crypto ETFs are likely integrating into core financial systems – a boost for crypto casino gaming? (Photo by Gilly on Unsplash)
Crypto gamblers and crypto casinos could be in for a fantastic ride over the next few months into 2024. Although cryptocurrency casinos are already popular, they could be on the journey to overriding fiat currency casinos.
This is certainly not a given, but plenty of bulls out there are sure that this is now the time for cryptocurrency to disrupt the money markets – and that would mean a massive influx in the cryptocurrency casino industry.
The possibility of a spot bitcoin exchange-traded fund (ETF) being approved by the US Securities and Exchange Commission (SEC) is highly anticipated by investors. Early in June, when BlackRock, a major player in the investment industry, filed for the product, there was a lot of excitement.
This momentum continued when a court ruling forced the SEC to reevaluate its decision to deny Grayscale’s request to convert its Bitcoin Trust (GBTC) into a spot ETF. The SEC opposes exchange-traded funds (ETFs) because Bitcoin is traded in unregulated markets worldwide, making it difficult to prevent fraud and price manipulation.
Monitoring the exchanges
Surveillance-sharing agreements (SSA) with some cryptocurrency exchanges have been one attempt to address the issue. This should, in theory, make it possible to identify dishonest people who try to manipulate the market. Some have questioned their effectiveness since these SSAs cannot serve the whole market. Since the underlying commodity futures markets are relevant, prior rulings permitting spot commodity ETFs were the foundation for exchange-traded funds (ETFs).
Roll back the clock to January 2023 Crypto Prices: Check out where crypto prices were in the iGaming Crypto Watch January 2023 report – Is it a bulls market? On 1st Jan prices were BTC – $ 16,606 | BCH – $ 96.77 | LTC – $ 70.89 | TRON – $0.055 | XRP – $ 0.34 | ETH – $ 1,195.51 | DOGE – $ 0.070. You can check out the section below “2023’s Quarterly Crypto Price Rise” to see how far crypto prices have risen.
What does the SEC say to give crypto casino players hope?
The SEC has established that for a futures market to be deemed a “regulated market of significant size,” it must lead the spot in price formation. Put another way, during the price discovery process, information derived from the futures market is more important than that from the spot market. However, there are still some situations in which manipulation in the spot markets can trickle down to the ETF, even though the futures market primarily drives price discovery.
The details, particularly the creations and redemptions method (in cash or in-kind) and the pricing source used to calculate net asset value (NAV)—are where the devil is in the details.
Good Vs bad scenarios
Imagine a scenario in which a manipulator successfully brings the underlying commodity’s price down by 5% in unregulated spot markets. There is a simple arbitrage that functions as a kind of conduit between the unregulated spot markets and the ETF if the creations and redemptions are similar. The program trader can take advantage of this situation by purchasing a spot commodity at a discount and selling the equivalent amount of the ETF.
The purchased commodity can generate new ETF units and settle the short ETF position. This trade will remain profitable until the spot commodity price and the ETF’s equivalent quantity significantly converge. The liquidity of each price determines how much it will move toward convergence. Still, the ETF price will also influence some adjustments, indicating that spot market manipulation affects the ETF.
A similar arbitrage is possible if the creations and redemptions are made in cash, and the NAV is determined using commodity prices obtained from unregulated spot markets. Using cash to create ETF units to cover the short position, the trader purchases underpriced spot commodities and sells the ETF. Attempting to mimic the pricing methodology used in the NAV calculation, which establishes the price paid for the creations, the trader sells the commodity. The trade is essentially the same as with in-kind creation, except for lower capital efficiency (ratio between company spending and profits) and a slight execution risk when replicating the NAV price.
Is there a configuration that prevents manipulation of the ETF effectively? The most promising option is calculating NAV using spot prices obtained from the futures curve with in-cash creations and redemptions. There is no assurance that a trader will sell the goods at a price close to the one used in the NAV computation, particularly if a manipulator is in the spot market. The transaction won’t be an arbitrage trade anymore. There will be a blockage in the channels that links the spot and ETF prices.
Conversely, this configuration makes making simple arbitrage transactions between the ETF and futures easier. An arbitrageur can execute a trade in the opposite position with perfect hedging on futures whenever the ETF price deviates from the spot price implied by the futures curve, creating a strong connection between the ETF and the futures market.
How will this affect cryptocurrency casinos? An ETF with these qualities would be just as immune to manipulation in unregulated spot markets as futures contracts or futures ETFs make sense. Therefore, this would be the catalyst to crypto casinos taking off.
2023’s Quarterly Crypto Price Rise
| Quarterly Crypto Price Guide | What’s in the Content? |
|---|---|
| iGaming Crypto Watch December 2023 | Q4 – December 2023 Crypto Prices |
| iGaming Crypto Watch September 2023 | Q3 – September 2023 Crypto Prices |
| iGaming Crypto Watch June 2023 | Q2 – June 2023 Crypto Prices |
| iGaming Crypto Watch April 2023 | Q1 – April 2023 Crypto Prices |
BTC ETFs would be beneficial to all markets (including cryptocurrency casinos and players!)
Researchers and industry professionals have already discovered some strong evidence in favor of the theory that Bitcoin Futures will dominate the process of determining the price of bitcoin. Without a doubt, the establishment of a spot Bitcoin ETF in the United States would benefit both the traditional markets and the cryptocurrency sector. The attention is in the details as to whether something is going to be good… or great and getting this right is critical for the markets. A Bitcoin ETF has the potential to be extremely beneficial for investors by keeping the bad guys at bay.
Learn more about cryptocurrency casinos: If you are a fiat currency casino player, but you are on the edge of joining a cryptocurrency casino or depositing crypto into your currency online casino, then I suggest is the Casinoplusbonus guide ‘Use Bitcoin and other cryptocurrencies in online casinos‘, which is a great read.
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