The world's largest Bitcoin fund, Grayscale Bitcoin Trust (GBTC), has seen a slowdown in outflows, potentially marking an end to Bitcoin's two-week plummet. Bitcoin prices have stabilized and are currently trading around the $40,000 mark.
Data compiled by the media shows that since the GBTC fund was converted to an ETF on January 11, this decade-old Bitcoin fund has experienced an outflow of approximately $4.8 billion, reducing its size to $20 billion. Concurrently, Bitcoin's price has fallen by about 20%.
The daily outflow rate of GBTC peaked at $641 million on January 22 but slowed to $394 million by January 25.
Sean Farrell, Chief Cryptocurrency Strategist at Fundstrat Global Advisors, noted in a report that a reduction in GBTC redemptions is being observed. While more data is needed to confirm this trend, even a slowdown in outflows could significantly boost the market.
The transition from a closed to an open structure for GBTC allowed for more flexible trading, which provided an opportunity for FTX, amid bankruptcy liquidation, to sell off $1 billion worth of assets (FTX's ownership of GBTC has since reduced to zero). Similarly, the bankrupt cryptocurrency exchange Mt.Gox has also started repaying Bitcoin and Bitcoin Cash (BCH), further increasing the supply pressure on Bitcoin.
The substantial outflows from GBTC are also closely related to its high fees. Despite Grayscale reducing its management fee from 2% to 1.5%, it remains several times higher than its competitors.
On the same day GBTC was converted to an ETF, nine other spot Bitcoin ETFs, including those from BlackRock and Fidelity Investments, made their debut in the U.S. According to data compiled by the media, these nine ETFs attracted over $5 billion in inflows, but if GBTC is included, the net inflow for all ten spot ETFs is only $745 million.
Moreover, shares of Grayscale's fund have been trading at a discount to the net value of the Bitcoin it holds since the beginning of 2021 (during the closed period). ETF shares usually trade close to the fund's net asset value. Therefore, investors speculated that this discount would disappear once the fund was converted to an ETF, which turned out to be true.
A report by JPMorgan strategists, led by Nikolaos Panigirtzoglou, suggested that liquidating previous GBTC investments at prices below last year's net asset value might have been a significant factor behind Bitcoin's pullback. However, this liquidation "should largely be complete by now," limiting further downside for Bitcoin.
John Hoffman, Managing Director of Sales and Distribution at Grayscale, stated earlier this week that GBTC has dominated trading and has solidified its role as a true capital market tool for transferring Bitcoin risk. He added that GBTC's diversified shareholder base will continue to adjust fund flows.
Following the launch of spot Bitcoin ETFs, Bitcoin has faced continuous sell-offs. Anticipating that the ETFs would stimulate Bitcoin trading, the cryptocurrency surged 160% last year, outperforming traditional assets like stocks. However, since the beginning of this year, Bitcoin has been declining and underperforming global markets.
The U.S. spot Bitcoin ETF debuted on January 11, with Bitcoin reaching an intraday peak of $49,021 that day. Some media have claimed that, based on trading and volume indicators, the U.S. spot Bitcoin ETF is the most successful in history.
However, earlier this week, Bitcoin dropped to a low of $38,510, falling 44% from its peak of $69,000 during the pandemic in 2021.
Prominent financial commentator Peter Schiff commented that the new Bitcoin ETF hasn't created additional demand; it's merely shifted it. Investors who might have bought actual Bitcoin or Bitcoin-related stocks have simply switched to the new ETFs. Rearranging the deck chairs won't stop the ship from sinking.
