In the current cryptocurrency market, there is a notable demand for leverage, particularly during bullish phases. People are willing to pay for this leverage, and market makers, as well as providers, are compensated through futures basis and perpetual funding rates. Historically, there has been a shortage in the supply of such leverage, leading to significant spikes in basis and funding rates.

Contrastingly, in traditional financial markets, banks and similar institutions supply leverage by market making in futures and Total Return Swaps. They achieve this by purchasing the underlying asset and selling futures to those seeking leverage, profiting from the basis. In these markets, a transaction that yields an annualized basis of 20 basis points is considered profitable.

However, traditional finance capital has been unable to provide this leverage in the crypto space due to compliance restrictions in banks that prevent trading in physical Bitcoin. The advent of Bitcoin ETFs, which settle to the same benchmarks as BTC CME futures, changes this dynamic. It makes it feasible and profitable for traditional finance to engage in the market by going long on ETFs and short on futures, thereby locking in a few percentage points of annual return.

This opportunity is significantly more attractive than those currently available in traditional markets, promising to attract a substantial influx of mainstream capital into the crypto market. However, it's important to note that the cryptocurrency market's current size limits the amount of capital that can be effectively deployed compared to more established markets like the S&P 500.

The presence of larger balance sheets capable of providing leverage on the CME is expected to create a notable differential in basis and funding rates between CME and crypto-native exchanges. This differential will likely incentivize funds that operate across both platforms to arbitrage the difference, thereby increasing the capital available for leverage on crypto exchanges. This increase in available capital is expected to structurally reduce the basis and funding rates, making the cost of leverage more affordable for cryptocurrency speculation.

The reduction in the cost of leverage could significantly impact market flows in the upcoming bull market, potentially supercharging rallies in the next few years. However, an important issue that remains to be addressed is the tax treatment concerning the creation and redemption of shares, whether in kind or in cash, as different treatments could have implications on the actual functioning of the market.