Spot bitcoin ETFs may increase short trades by traditional market participants, analyst says

Grant added that there is now the potential for the emergence of functional "repo" markets for spot bitcoin ETFs with top-tier equity trading counterparts. This development could foster a perception among market participants that there is now reduced counterparty risk when engaging in borrowing and lending mechanisms used for short positions.

"In essence, whereas in the past, you had to feel comfortable with the credit risk of the CeFi desk of your choice, which obviously did not end well in many circumstances, the arrival of spot bitcoin ETFs should see counterparty risk palpably abate since it will be possible to gain short exposure to bitcoin in a way other than through borrowing and selling the actual token, trading on unregulated offshore exchanges, or having access to a commodities futures trading account via an FCM," Grant said.

Grant further explained that traders who seek passive yield could lend out ETF shares, for a market determined rate of interest. "Traders could then easily borrow the ETF and sell it, with a much lower perceived counter party risk, because they are dealing with a regulated U.S. equity broker dealer or prime broker," Grant added.