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Although spot ETFs have garnered significant institutional attention, Bitcoin's ETF release and lack of bullish performance have left many wondering why the asset is still struggling below major levels. The cause is not a single company or an unseen player manipulating the market. Rather, it boils down to how the ETF structure alters how prices are set.
Can institutions help Bitcoin?
The Authorized Participant (AP) system is at the heart of the conversation. ETF prices are kept in line with the underlying value of Bitcoin by the liquidity provided by large financial institutions like Jane Street, JPMorgan and others. They are there to maintain efficiency, not to raise prices. This distinction is important. As market makers and arbitrageurs, APs prioritize risk management over placing bullish wagers on Bitcoin's long-term trajectory.
Demand for ETFs does not always translate into direct spot Bitcoin purchases, which is the main structural change. According to conventional wisdom, institutional purchases of Bitcoin on the open market would be compelled by ETF inflows, raising the price.
The need for quick spot purchases can actually be decreased by APs using futures markets or other related instruments to hedge exposure. Demand that previously might have led to severe supply constraints is now absorbed across several financial tiers.
Issues with supply
This phenomenon erodes the feedback loop that has historically propelled Bitcoin's spectacular surges. Exposure can be artificially generated rather than buyers chasing a limited supply on exchanges.
Price reactions become smoother as futures markets absorb pressure. The system reduces the ferocity of price discovery rather than outright suppressing Bitcoin.
This effect is reinforced by in-kind creation and redemption mechanisms. Institutions can source Bitcoin gradually through over-the-counter channels rather than creating noticeable spikes in exchange rates. This eliminates the abrupt shocks that once caused vertical moves and gradually distributes buying pressure.
Although Bitcoin is still technically unstable, it is currently showing signs of stabilization from a market standpoint. Although buyers appear to be attempting to defend important zones based on recent attempts to maintain support, the overall trend still shows caution rather than renewed momentum.
Dan Burgin
Vladislav Sopov
