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  • Writer's pictureTeresa Pace

The departure of funds from Grayscale GBTC disrupts the dynamics of the Bitcoin market.

Updated: Jan 31

Significant outflows from the Grayscale Bitcoin Trust ETF played a substantial role in the recent correction of Bitcoin's market price, as per a new market report from Bitfinex. The report suggests that a substantial sell-off of Grayscale Bitcoin Trust ETF shares, partly instigated by the troubled exchange FTX, had a considerable impact on Bitcoin's recent decline in January 2024.

According to the latest market update from Bitfinex Alpha, the profit realization following Grayscale's conversion of its GBTC trust to an ETF exerted significant influence on the marketwide correction, causing BTC to drop from $48,700 to $38,600 in a matter of days. Bitfinex's head of derivatives, Jag Kooner, delves into the report's finer details, highlighting the significant "discount" offered to GBTC investors as a primary factor driving the high volume of share selling in recent weeks:

"The discount was over 50% during the bear market lows in late 2022, and it’s non-existent now because of arbitrage traders. This was one of the most expected results of spot ETFs rolling out, which means these investors have been waiting for a long time to realize these profits," explains Kooner.

The report emphasizes outflows totaling $4.3 billion following GBTC's conversion to a spot Bitcoin ETF on Jan. 16. In contrast, the spot Bitcoin ETF with the highest net inflows was BlackRock’s iShares Bitcoin Trust (IBIT), attracting $1.82 billion. Bitfinex analysts also underscore the impact of ETF flows on the BTC price, pointing out that there was no flow of funds into the respective spot Bitcoin ETF on Saturday, Jan. 20.

Despite its drop from $28.6 billion before the conversion, Grayscale's GBTC remains the largest Bitcoin ETF, with total assets under management hovering around the $24 billion mark.

The Bitfinex report also notes that the conversion of Grayscale's trust to a spot Bitcoin ETF facilitated the sale of substantial shares held by the bankrupt cryptocurrency exchange FTX. FTX sold 22 million GBTC shares, valued at nearly $1 billion, completely liquidating its shares.

Another factor highlighted by Bitfinex Alpha is the impact of spot BTC ETF fees. Kooner notes that while Grayscale’s competitors charge fees ranging from 0.2% to 0.9%, Grayscale charges 1.5%:

“This difference in fees has incentivized investors to move their funds from GBTC to lower-cost Bitcoin ETF options. Additionally, multiple other ETF filings have waived off fees for the first year, further incentivizing a migration from GBTC to other products.”

Kooner states that investors are seeking more cost-effective ways to gain exposure to Bitcoin, impacting the capital shift within the nascent Bitcoin ETF space. As January concludes, ETF data suggests that the movement of capital between various ETF funds is starting to stabilize.

"The daily outflows are reducing on a daily basis but are still quite high at an average of around $450 million per day. Unless there is a change in the fee structure, outflows are expected to continue," Kooner adds.

The head of derivatives at Bitfinex concludes by pointing out that large GBTC investors who bought shares at a 50% discount over the past two years would realize profits on an earlier timeline than other investors, indicative of the trading behavior observed in January.

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