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Grayscale Outflows and Bitcoin Price Dip – Are They Related?

Last Updated January 19, 2024 3:06 PM
James Morales
Last Updated January 19, 2024 3:06 PM

Key Takeaways

  • The price of Bitcoin has declined by around 10% since the launch of spot Bitcoin ETFs in the US.
  • Grayscale has transferred thousands of Bitcoins to Coinbase to fund ETF redemptions.
  • Sell pressure created by Grayscale’s outflows could cause a further decline in the BTC price.

In the 7 days since the first spot Bitcoin ETFs started trading on US securities exchanges, the price of Bitcoin has fallen by around 10%. At the same time, investors have pulled hundreds of millions of dollars from Grayscale’s Bitcoin fund (GBTC) since its conversion to an ETF.

On Thursday, January 18, when the flight of capital from GBTC outweighed the combined inflows of all 10 other spot bitcoin ETFs. With so much BTC unleashed on the market, selling pressure from Grayscale’s outflows could be a factor in Bitcoin’s recent price collapse.

Grayscale Offloads Thousands of BTC Amid Exodus of Investors 

Since Thursday, January 11, when GBTC investors first got the chance to redeem their shares, Grayscale has transferred thousands of Bitcoins to Coinbase to fund the sudden rush of redemptions. In batches of up to 1,000 BTC, the firm has sent a total of 16,712 BTC worth more than $726 million to the crypto exchange so far, data  from Arkham Intelligence reveals.

The largest volume of transfers to Coinbase occurred on Wednesday when Grayscale offloaded 11,712 Bitcoins. As news of the transactions spread, the price of Bitcoin dropped sharply, but the dip was followed by a strong rebound.

In the long run, however, GBTC redemptions have the potential to drive a more pronounced downtrend.

How GBTF Outflows Impact the Price of Bitcoin

Although significant, transactions related to GBTC redemptions in the last week represent just a small fraction of more than 19.6 million BTC in circulation. They are, therefore, unlikely to be the primary catalyst for the bearish conditions that have characterized the market since last Thursday.

Nevertheless, the company still holds over half a million Bitcoins – more than enough to influence the overall market should outflows continue at their current pace. 

Noting that GBTC redemptions have already released thousands of additional Bitcoins on the market, Atlascap Invest predicts  that the selling pressure will directly affect the cryptocurrency’s price in the next 1-2 months.

Considering that GBTC’s management fees are significantly higher than those charged by its peers, the recent exodus of capital may be driven by investors who plan to relocate to cheaper alternativesAs such, Atlascap anticipates the negative impact of GBTC redemption pressure lasting no more than 2 months. Long term, the firm predicts that demand from other ETFs will ultimately push the price of Bitcoin up.

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