Authorized participants in crypto ETFs: how they work
An authorized participant is a large firm that creates and redeems ETF shares. Spot crypto ETFs: it delivers cash or crypto to the issuer for new shares.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
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- APs handle new ETF shares in bulk, in batches called creation units.
- Retail investors do not act as APs; they buy ETF shares on an exchange.
- If APs stop creating shares, the ETF can trade at a premium or discount.
- An AP is not a market maker, though one firm can do both jobs.
The term shows up in crypto ETF news because the role connects the fund's holdings to the shares that trade. You do not need to be an AP to own a crypto ETF.
What Is an Authorized Participant?
An authorized participant is a big broker-dealer. It works straight with a fund company to make new ETF shares and to take old ones back. The firm does this in the primary market, not on an exchange.
How Do Crypto ETF Creations Work?
For a spot crypto ETF, an AP delivers cash or crypto to the issuer and receives new shares. When US regulators approved the first spot bitcoin funds in January 2024, those products took cash for creations. Redemptions run the other way. The process usually keeps the ETF's price close to the value of its crypto, because an AP can profit when the two drift apart.
Who Can Be an Authorized Participant?
Individuals cannot act as APs. If you want crypto ETF exposure, you buy shares through a brokerage account on an exchange.
- Be a registered broker-dealer.
- Sign an agreement with the ETF issuer.
- Handle large creation and redemption orders.
- Meet the fund's operational rules.
AP vs Market Maker
An AP and a market maker are different roles, though one firm can do both. The AP works with the issuer in the primary market. A market maker trades shares on an exchange to provide liquidity.
What Happens When APs Stop?
APs are not obligated to create or redeem shares at all times. If they step back, the crypto ETF can trade at a premium or discount to the value of its crypto. A premium means the ETF costs more than its holdings; a discount means it costs less.
Deviations can occur even when APs are active, but they usually close quickly.
Frequently asked questions
No. The fund's custodian holds the bitcoin. The AP receives new ETF shares, not the fund's coins.
The fund's crypto sits with its custodian, separate from the AP's estate. Another AP can usually take over the role.
The fund names them in public filings, such as the prospectus or statement of additional information.
