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GBTC $4.3B Outflows Post ETF Conversion Surpass JPMorgan’s $3B Forecast

Last Updated January 26, 2024 10:59 AM
Teuta Franjkovic
Last Updated January 26, 2024 10:59 AM

Key Takeaways

  • The Grayscale Bitcoin Trust has seen a slowdown in outflows since it was converted into an exchange-traded fund.
  • This slowdown in outflows is likely to help alleviate the recent two-week downturn in Bitcoin’s value.
  • The conversion of GBTC to an ETF has led to profit-taking by speculators but this is now largely over.

The $20 billion Grayscale Bitcoin Trust, the world’s largest Bitcoin portfolio, has seen a slowdown  in outflows and financial strategists believe this might help alleviate the recent two-week downturn in Bitcoin’s value.

JPMorgan analysts have observed a decrease in the downward pressure on Bitcoin’s price, attributing this change to the completion of profit-taking activities related to the Grayscale Bitcoin Trust (GBTC), which recently converted into a spot bitcoin exchange-traded fund.

GBTC’s Reduced Outflows To Ease Bitcoin’s Two-Week Decline

Since its transformation into an exchange-traded fund on January 11, the fund has experienced  about $4.8 billion in withdrawals, exceeding JPMorgan’s initial estimate of approximately $3 billion. During this time, Bitcoin’s value has dropped by approximately 20%.

According to JPMorgan :

“There appear to be two emerging competitors to Grayscale’s bitcoin ETF: Blackrock and Fidelity, which have so far attracted $1.9 billion and $1.8 billion of inflows respectively. They both have much lower fees of only 25 basis points (without waivers) vs 150 basis points for GBTC.”

This shift from a closed-end format to an ETF allowed investors to end a widely-used arbitrage trade , leading to significant sell-offs, including those by the estate of the defunct FTX exchange. The daily outflow from the fund, also known as GBTC, reached its highest at $641 million on January 22 but decreased to $394 million by January 25.

Sean Farrell, head crypto strategist at Fundstrat Global Advisors said :

“We’re starting to see a pattern of decreasing redemptions from GBTC. We’ll certainly need to see a few more days of follow-through, but a mere slowing down of this AUM exodus would serve as a large boost for the market.”

ETF saga
Credit: Bloomberg

Conversion to ETF Closes Discount Gap, Speculators Reap Profits

The Grayscale Bitcoin Trust commenced trading in its new exchange-traded fund format on the same day that nine other spot Bitcoin ETFs, from major firms like BlackRock Inc. and Fidelity Investments, made their debut in the U.S. These funds have collectively attracted over $5 billion in investments. The net inflow  into all ten spot Bitcoin ETFs combined is approximately $574 million.

Shares in the Grayscale Bitcoin Trust, which traded at a discount to its actual Bitcoin holdings since early 2021 while it was a closed-end product, have seen a shift since its conversion to an ETF. ETF units typically align closely with the net asset value, leading speculators to anticipate the elimination of this discount, which has now occurred.

JPMorgan Chase & Co. strategists, including Nikolaos Panigirtzoglou, noted  in a report that profit-taking from previous investments in GBTC at a discount to the net asset value last year has been a key factor in Bitcoin’s recent price correction. However, he suggested that such profit-taking has largely concluded, which could limit further downside risks for Bitcoin moving forward.

He said:

“In turn, this would imply that most of the downward pressure on bitcoin from that channel should be largely behind us.”

Grayscale Bitcoin Trust’s Influence and Bitcoin’s Market Performance

Grayscale Bitcoin Trust has significantly influenced trading volume, establishing itself as a key tool for risk transfer in Bitcoin, according to  John Hoffman, Grayscale Investments’ managing director of sales and distribution. He mentioned earlier this week that the diverse shareholder base of GBTC will continue to implement strategies affecting inflows and outflows.

Bitcoin experienced a remarkable surge of almost 160% last year, outshining traditional assets like stocks, fueled by expectations that the launch of U.S. spot ETFs would drive broader adoption among institutional and retail investors. However, since the beginning of the year, Bitcoin has been retreating and lagging behind global markets, as investors anticipate whether the initial excitement will translate into sustained reality. The group of U.S. spot Bitcoin ETFs has been noted as the most successful ETF launch in history in terms of trading and flow metrics.

Bitcoin reached an intraday high of $49,021  on January 11, coinciding with the rollout of these funds, but later dropped to a low of $38,510 earlier this week. At the time of writing, the largest digital asset was trading  at $40,195. It had previously set a record high of nearly $69,000  during the 2021 pandemic-era crypto frenzy.

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