New ETF Proposal Aims at Bitcoin’s After-Hours Returns Amid Record Outflows

Tidal Trust II has submitted a filing with the US Securities and Exchange Commission (SEC) for a Bitcoin exchange-traded fund (ETF) that offers exposure to Bitcoin when US markets are closed.
This filing comes during a challenging time for spot BTC ETFs, which have seen their lowest performance with significant outflows and rising concerns regarding potential price manipulation in the US market.

Key Takeaways

Tidal Trust II has proposed a Bitcoin ETF that targets returns during after-hours trading when US markets are closed.
The AfterDark ETF will not hold Bitcoin directly but gain exposure through Bitcoin futures, options, and listed ETFs.
Recent market trends show record outflows from spot Bitcoin ETFs, contributing to a decline in Bitcoin's price.
The filing arrives amid concerns of price manipulation during US trading hours.
There are signs of stabilization in the ETF market with a noticeable rebound in early December.

New ETF Proposal Targets Bitcoin’s After-Hours Activity

The Form N-1A, filed on Tuesday, suggests adding two new ETFs to the existing fund lineup. These include the Nicholas Bitcoin and Treasuries AfterDark ETF and the Nicholas Bitcoin Tail ETF.

Per the registration statement, the AfterDark ETF will not hold Bitcoin (BTC) directly. Instead, it plans to achieve exposure through investments in Bitcoin futures, Bitcoin options, and Bitcoin ETFs or exchange-traded products (ETPs) listed in the US. The fund may also use a subsidiary based in the Cayman Islands to manage its positions. The primary goal is to achieve long-term capital appreciation by focusing on Bitcoin’s overnight return profile. During daytime trading hours, the fund will hold short-term US Treasuries and cash equivalents.

According to the document, “When utilizing Bitcoin Futures, the Fund trades these instruments during US overnight hours and closes them shortly after the US market opens each trading day. When utilizing Bitcoin Underlying Funds, the Fund purchases a security at US market close and then sells the position around US market open. When utilizing Bitcoin Options, the Fund typically enters into options positions that establish a synthetic long Bitcoin position near the close of regular US trading hours. These positions are typically closed or unwound near the following market open. However, the Fund may hold these synthetic long positions longer and offset them during US daytime hours by entering into a synthetic short position.”

Eric Balchunas, a senior ETF analyst at Bloomberg, shared insights about the strategy in a recent post on X (formerly Twitter). He pointed out that internal research conducted last year indicated that a large portion of Bitcoin's gains occurs during after-hours trading.
“Doesn’t mean the ETFs aren’t having an impact. Some of this is positioning because of the ETFs or derivatives based on flows, etc. But yeah, the Bitcoin After Dark ETF might deliver better returns; we’ll see,” Balchunas commented.

Bitcoin After-Hours Returns. Source: X/Eric Balchunas

This proposal arrives as many industry observers are raising concerns about alleged price manipulation during US daytime trading hours. Analysts have noted a repetitive pattern of Bitcoin price drops coinciding with the opening of the market.

Shift in Bitcoin ETF Flows and Investor Sentiment

Currently, spot Bitcoin ETFs are facing significant challenges in the fourth quarter of the year. Data from SoSoValue indicates that monthly outflows hit a record $3.48 billion in November. BlackRock’s iShares Bitcoin ETF saw the largest portion, with $2.34 billion in outflows.

These heavy withdrawals coincide with a steep decline of 17.4% in Bitcoin’s price throughout November, marking it the worst month for the asset this year. This downturn has affected investor confidence and heightened caution across digital asset markets.

Withdrawals continued into December, with an additional $87.77 million leaving spot Bitcoin ETFs in the first week of the month. Nonetheless, there are signs that this trend might be stabilizing. Notably, on December 9, the funds reported a significant rebound, attracting $151.74 million in inflows.