Despite a two-week slump in Bitcoin, the slowing outflows from the $20 billion Grayscale Bitcoin Trust (GBTC), the world’s largest Bitcoin portfolio, may bring relief to the market, according to strategists. Since its transformation into an exchange-traded fund (ETF) on January 11, approximately $4.8 billion has exited the more than decade-old fund, contributing to Bitcoin’s 20% decline in the same period.
The fund’s shift from a closed-end format facilitated the closure of a popular arbitrage trade, triggering disposals by the bankrupt FTX exchange. The daily outflow pace from GBTC, which peaked at $641 million on January 22, cooled to $394 million by January 25.
Sean Farrell, Head Crypto Strategist at Fundstrat Global Advisors, noted, “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.”
The Grayscale fund’s new format coincided with the debut of nine other spot Bitcoin ETFs in the US on January 11, including offerings from BlackRock Inc. and Fidelity Investments. These funds have attracted over $5 billion, with the net inflow into the 10 spot ETFs totaling approximately $574 million, as per Bloomberg data.
Shares in the Grayscale vehicle fell to a discount to the portfolio’s underlying Bitcoin holdings when it was a closed-end product in early 2021. The conversion to an ETF led speculators to anticipate the discount disappearing, and it has indeed happened.
JPMorgan Chase & Co. strategists, including Nikolaos Panigirtzoglou, mentioned, “Profit-taking on previous GBTC investments, made at a discount to net asset value last year, has likely been a major driver behind Bitcoin’s correction.” They believe that such profit-taking “should be largely behind us, limiting any downside for Bitcoin from here.”
John Hoffman, Managing Director of Sales and Distribution at Grayscale Investments, emphasized that the Grayscale Bitcoin Trust “has been dominating trading volume” and remains a significant tool for risk transfer in Bitcoin.
While Bitcoin experienced a remarkable surge of almost 160% last year, recent declines have raised questions about the realization of broader cryptocurrency adoption. The group of US spot Bitcoin ETFs had a historic launch in terms of both trading and flow metrics, according to Bloomberg Intelligence.
Bitcoin, which reached an intraday peak of $49,021 on January 11, has retraced to $40,098.32 as of 11:19 a.m. in Singapore on Friday, following a low of $38,510 earlier in the week. Despite recent fluctuations, it set a record high of nearly $69,000 during the crypto mania in 2021.
