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Non-Tech : GBTC: Bitcoin Investment Trust (Not an ETF) OTC:QX
GBTC 89.02-1.2%Oct 28 4:00 PM EDT
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To: FIFO_kid2 who wrote (246)11/24/2023 12:28:04 PM
From: Elroy  Read Replies (1) of 270
 
So the ETF shares track the price of bitcoins as closely as possible, and the ETF occasionally rebalances its holdings by buying or selling tokens.

Occassionally? Tokens?

This process of creation and redemption is done by authorized participants (APs). These are typically large financial institutions, which create or redeem shares of the ETF based on market demand. If the ETF shares are trading at a premium or discount to the actual price of bitcoins, then the APs create or redeem ETF shares in large blocks, essentially arbitraging the difference so that the ETF share price alignments with the cost of bitcoins.

Hmmm, it's not 100% clear how this works.

If the ETF trades at a premium to the price of Bitcoin, then.......AP's create more shares in the ETF? How? Magic?

That explanation perhaps explains something, but I still don't quite get it.

Presumably there are multiple AP's (large financial institution) who....ensure the price per unit of the ETF stays close to (the price of Bitcoin x the number of Bitcoin held by the ETF / the number of ETF units issued)?

So market makes (AP's) in the ETF use arbitrage to ensure the ETF is fairly priced. But how? Not quite clear to me....
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