What is the reason behind Grayscale’s Bitcoin sell-off?
Grayscale’s Bitcoin Trust (GBTC) is experiencing significant outflows, amounting to $594 million, as the crypto market undergoes a downturn. In a related move, Grayscale has transferred 9,840 BTC worth $418 million to Coinbase Prime, bringing the total amount moved since January 12 to 41,478 BTC, totaling over $1.7 billion. These actions, primarily aimed at managing redemptions, highlight the challenges faced by GBTC.
Ash Crypto, an expert in the field, took to Twitter to provide insights into Grayscale’s decision to sell BTC amid ETF redemptions. He explains that historically, GBTC did not sell Bitcoin, but instead redeemed shares with USD, making it a significant holder of BTC. However, the approval of spot ETFs has led investors to withdraw due to the high 1.5% annual management fee, which is considerably higher than that of competitors. Additionally, the disappearance of the previous 40% discount on GBTC has prompted many investors to exit, forcing GBTC to sell BTC to meet redemption requests. This process is expected to take several weeks and is affecting the short-term trajectory of Bitcoin.
The reasons behind Grayscale’s outflows have sparked speculation, with some attributing the delay in outflow reflections in recent data to the T+1 accounting and settlement processes. Others on social media point to Grayscale’s high ETF fees, particularly its 1.5% expense ratio, which makes it an expensive Spot Bitcoin ETF in America.
Echoing a similar sentiment, crypto investor Scott Melker clarifies that Grayscale is not actively selling Bitcoin on the market. Instead, when people sell shares of Grayscale’s GBTC, Grayscale must sell a corresponding amount of Bitcoin to manage the fund. This is not a malicious act but rather how the mechanics of an ETF work.
Ash Crypto predicts that selling pressure will subside over the next 1-2 weeks, with the majority of funds leaving GBTC expected to rotate into other Bitcoin spot ETFs rather than exiting the asset class altogether. He advises investors to be patient during this transition and warns against making impulsive decisions during the current short-term crisis.
Despite the challenges faced by GBTC, there is still an overall net demand for Bitcoin exposure through spot ETFs, with $1.4 billion flowing into these products compared to $579 million leaving GBTC. Once the outflows from GBTC stabilize, this pent-up demand for spot ETFs is expected to drive the next increase in Bitcoin prices. The trading volume of nearly $10 billion in three days for Spot Bitcoin ETFs indicates a growing interest and a positive shift in investor sentiment.