Blame $GBTC

Prior to the Bitcoin ETF applications being approved, I wrote that the ETFs couldn’t be priced into the market because it wasn’t mathematically possible for the Bitcoin economy to price in an influx of billions of dollars. I also wrote that there would be a multi-million dollar marketing competition from the institutions competing for market share, which would ensure every household in America is aware of the newly approved Bitcoin ETFs. 

While it is too early to assess the impact of any marketing campaigns, the fact remains that two weeks after the Bitcoin ETF approvals, we have seen the price of Bitcoin spike to around $49,000 and then fall to hover around $40,000. 

The reason is not the lack of inflows and interest in the ETFs—we have seen billions of dollars flood the market. 

Grayscale's Bitcoin Trust ($GBTC) is the primary culprit; specifically, its outflows. To date, over 80,000 Bitcoin have been sold from the trust. This max exodus away from $GBTC has dramatically increased the sell pressure for the price of Bitcoin. 

The immense outflows have happened for two primary reasons. 

The first is Grayscale’s 1.5% annual management fee being the highest of all the Bitcoin ETFs. While many of the other ETF competitors waived fees for the first six months and will charge less than 0.5% overall, Grayscale’s fee remained higher because they trusted that many of the accounts holding $GBTC would rather choose to accept the higher fee than sell and face capital gains taxes. 

The other primary reason for outflows is that, upon ETF approval, $GBTC stopped trading at a discount in relation to the price of Bitcoin. Many people who have held $GBTC at a loss were suddenly even or above their purchase price. Realizing this, they sold. 

The familiar foe, FTX, was one such customer as they seemed to use this timing to sell over $1 billion worth of $GBTC, further adding to the sell pressure for the price of Bitcoin.

Even with weeks of $GBTC sell-offs, it’s understood these outflows cannot go on forever. January 25th saw the first day of decreasing sell-offs from Grayscale since the first day of ETF approval.

Over time, outflows from Grayscale should decrease while the competition for market share amongst the other ETFs will continue to heat up. From a starting holding of over 600,000 Bitcoin, Grayscale is now down to less than 525K, while we’re seeing the supply of every other Bitcoin ETF grow. 

Two weeks post-ETF approval it is easy to zoom in and be fearful of the recent market deceleration. 

The reality is these ETFs have been historically successful despite the outflows from $GBTC.

In hindsight, it's obvious people were going to sell $GBTC. In projecting the future, healthy competition among the Bitcoin ETFs will only be a good thing for the market.

The ETF approvals are still only a positive for Bitcoin. Billions of dollars are being onboarded into the Bitcoin economy and millions of people now have direct Bitcoin access through their TradFi portfolios. 

Zoom out from the outflows caused by $GBTC and focus on what's to come: the halvening and a true marketing push–looking at you Super Bowl commercials!

We will revisit this conversation in the coming months. Until then, stay calm. 

Keep stacking SATs.

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