Bitcoin ‘AfterDark’ ETF Seizes Overnight BTC Advantage, Avoids U.S. Hours

Summary: Nicholas Financial Corporation has proposed an innovative Bitcoin-focused exchange-traded fund (ETF) designed to take advantage of Bitcoin's tendency to perform better during non-U.S. trading hours. This fund, named the Nicholas Bitcoin and Treasuries AfterDark ETF, aims to hold Bitcoin overnight and shift into U.S. Treasury securities during the day.

Key Takeaways

The Nicholas AfterDark ETF targets Bitcoin’s stronger performance during non-U.S. trading hours.
The fund will buy Bitcoin after U.S. markets close at 4 p.m. ET and sell it before they reopen at 9:30 a.m. the next day.
During U.S. trading hours, the fund will invest in short-term U.S. Treasury securities.
This strategy departs from traditional Bitcoin ETFs by focusing only on overnight holdings.
Market dynamics, including ETF flows and institutional trading strategies, influence Bitcoin’s performance.

Bitcoin has demonstrated a persistent pattern

Bitcoin Shows Increased Gains After Hours: Analysis

Recent data from crypto analytics firm Velo.xyz highlights Bitcoin's (BTC) notable trend of achieving better performance outside of U.S. trading hours. As a result, Nicholas Financial Corporation has submitted an application to launch an ETF that leverages this pattern.

The analysis indicates that Bitcoin consistently shows stronger returns when traditional U.S. markets are closed, while it struggles to maintain its value during regular trading hours. Eric Balchunas, a Bloomberg Intelligence analyst, notes that this trend has been evident throughout 2024, and it may be impacted by the way investments in spot ETFs and derivatives are structured during the day.

Innovative Fund Structure

Nicholas Financial's proposed Nicholas Bitcoin and Treasuries AfterDark ETF is set to purchase Bitcoin at 4 p.m. Eastern Time, capturing value right as U.S. markets shut down, and will sell it by 9:30 a.m. the following day, just before Wall Street resumes trading. In the time between, the fund will allocate assets into short-term U.S. Treasury securities.

This approach marks a shift from typical spot Bitcoin ETFs, which maintain ongoing exposure to Bitcoin around the clock. Additionally, Nicholas Financial has filed for a second product, the Nicholas Bitcoin Tail ETF, focusing on managing risks associated with significant market fluctuations.

Understanding Market Influences

Several factors may explain why Bitcoin behaves differently during U.S. market hours. Market analysts suggest that spot Bitcoin ETFs primarily operate during U.S. equities, creating a direct link between Bitcoin's price and overall market sentiment. Furthermore, institutional investors often utilize derivatives to hedge their positions during the U.S. trading session, which can limit potential Bitcoin gains or exacerbate losses when investments become concentrated.

The strategy behind the AfterDark ETF aims to harness Bitcoin’s price movements during off-hours while minimizing exposure to U.S. macroeconomic news, Federal Reserve insights, and equity market activities. By coupling Bitcoin investments with Treasury holdings, the fund seeks to mitigate losses while benefiting from historical overnight gains.

The Evolution of Bitcoin ETFs

This filing illustrates the evolution of the Bitcoin ETF landscape, as new issuers look for unique strategies to differentiate their products amid a market already crowded with numerous spot and futures-based funds. The proposal signals an increasing interest in incorporating microstructural elements into standard investment vehicles.

While the AfterDark ETF poses some questions regarding the adaptability of ETF regulations when creating time-specific exposure strategies, it does not appear to introduce any additional risks related to custody or market integrity beyond those already present in existing Bitcoin ETF frameworks.

Overall, Bitcoin's price continues to be swayed by various factors, including ETF inflows, institutional trading behaviors, and the broader cycles of global liquidity, as the cryptocurrency becomes increasingly integrated into traditional financial systems.