Bitcoin has dipped over 15% since the launch of the much anticipated spot exchange-traded funds (ETFs) last week.
Indeed this negative price action is typical of a ‘buy the rumor sell the news’ type event. The decline, however, is largely attributed to the Grayscale Bitcoin Trust (GBTC) outflows. The selling pressure originating from the asset management behemoth resulted in several billions flowing out of Bitcoin in the week following ETF approvals.
Since the launch of spot Bitcoin ETFs massive outflows have been witnessed from GBTC – the first ever regulated Trust for Bitcoin exposure. This as investors rotate into competing ETFs with lower fees and as GBTC investors – who over the past year had been buying the GBTC fund at a significant discount to Net Asset Value (NAV) to position for its eventual ETF conversion – have been taking full profit post-ETF conversion.
Before being re-listed as an ETF from a Trust, GBTC was one of one of the only ways for stock traders in the United States to gain exposure to the price movements of Bitcoin without having to purchase the actual cryptocurrency. That made it the largest regulated Bitcoin fund in the world by AUM. But now, in order to meet redemption requests, GBTC has been forced to sell Bitcoin en-masse. Over 38,000 BTC has left GBTC since it was converted to a spot ETF on the 11th of January 2024.
When GBTC was a Trust trading on Over The Counter (OTC) markets, it had no mechanism for retail investors to sell any of its Bitcoin holdings. This resulted in a huge discount of the GBTC fund to net asset value (NAV) and in Grayscale accumulating over ~28bn in Bitcoin. This discount between the Trust’s market price for its shares and the value of the underlying Bitcoin per share stretched to over -40%. Why? Because liquidity was only available OTC in the secondary market – participants could not create and redeem shares. This resulted in there being more shares on the market than people actually wanted to buy. Historically, GBTC did not sell any Bitcoin but redeemed shares with the US dollar – this resulted in the digital currency asset management company accumulating over $28bn in Bitcoin . But now authorised participants are able to redeem ETF shares at NAV, tethering the market price of the ETF to its NAV and eliminating the discount.
Investors in GBTC have jumped on their first opportunity to reclaim the ~$28bn of Bitcoin the fund had collected. In the first four days following spot ETF approval GBTC redemptions totalled more than $1.6bn. The selling pressure is negatively impacting the short-term trajectory of Bitcoin. A strengthening DXY is also behind the recent sell pressure as US yields rebound in response to declining bets on the likelihood that the Federal Reserve might start cutting interest rates as soon as March.