Traders have been buying shares of Grayscale since the beginning of the year. bitcoin BTC
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The trust, which has been trading at a discount to the underlying value of the Bitcoin it holds, will likely hope to pocket the difference once it is converted to a spot Bitcoin ETF.
This means that a significant portion of GBTC traders will be looking to cash out upon conversion to the ETF. With this in mind, analysts at JPMorgan looked at GBTC inflows beyond 2023 to calculate the value of shares that could be sold upon conversion. They estimate this figure to be around $2.7 billion.
“To proxy the purchase flow into the Grayscale Bitcoin Trust since the beginning of the year, we accumulate daily signed dollar volume, i.e. daily volume in thousands of stocks multiplied by the price times the price change signal “Prices were up that day, and if prices were down it was negative,” JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a report Thursday.
“This methodology yields an estimate of approximately $2.5 billion for net cumulative inflows into the Grayscale Bitcoin Trust since the beginning of the year. If we also add coverage for short-term interest from the beginning, this number rises to $2.7 billion. “It increases close to this year’s,” they said.
According to analysts, assuming much of this buying was driven by speculation that the Grayscale Bitcoin Trust would be converted into an ETF, investors would likely exit while taking profits once it is converted into an ETF. The outflow problem arises because investors appear to have purchased shares at a significant discount in anticipation of an ETF conversion, hoping to profit when the discount to net asset value is arbitraged upon conversion. The Grayscale Bitcoin Trust discount to net asset value is currently below 10% for the first time since July 2021.
At least $2.7 billion
The $2.7 billion figure is the minimum outflow JPMorgan analysts expect from Grayscale Bitcoin Trust upon an ETF conversion. Analysts said GBTC’s current fee of 200 basis points could become “significantly more” if it is not drastically reduced after the ETF conversion.
“Once the SEC approves spot Bitcoin ETFs in the U.S., we expect more intense competition as the average fees for Bitcoin ETFs converge to those for Gold ETFs, which are currently around 50 basis points,” the analysts added.
The ARK 21Shares Bitcoin ETF application listed fees of 80 basis points. This sets the level at which Grayscale Bitcoin Trust must initially lower its fees to prevent more serious outflows and maintain its dominance as the largest and most liquid Bitcoin fund. Analysts noted. “Over time, investors tend to lean toward the most cost-effective and most liquid ETFs,” they said.
Impact of the leak on the market
Analysts noted that if the $2.7 billion was actually completely out, such an outflow would “certainly put significant downward pressure on the price of Bitcoin.” However, they expect most of this amount to be transferred to other Bitcoin products, such as newly created spot Bitcoin ETFs, following SEC approval, and if so, “then the negative market impact will be more minimal.”
This will change the asset balance in the Bitcoin fund space from $23 billion in the Grayscale Bitcoin Trust and $5 billion in other funds to $20 billion in the trust and $8 billion in other funds, they said. “Nevertheless, it is highly likely that some of this $2.7 billion will exit the Bitcoin space entirely, leaving the balance of risk for the Bitcoin price skewed to the downside in our opinion,” he added.
Binance Payment ‘Positive’
In a note on Thursday, JPMorgan reiterated comments it shared with The Block on Wednesday that Binance’s settlement with the U.S. agency is “positive” for the cryptocurrency exchange and the industry. Analysts said Binance’s recent loss of market share “should be contained going forward and could be partially reversed once the impact of the agreement on Binance’s operations and business model becomes clearer.”
Analysts added that the Binance agreement will strengthen the ongoing shift toward regulated cryptocurrency companies and tools and help attract the attention of traditional market participants and investors.
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