The launch of spot Bitcoin exchange-traded funds (ETFs) in the US last week was meant to open the floodgates to greater mainstream adoption. However, an unexpected consequence has instead put significant pressure on the price of Bitcoin.
As investors exit Grayscale’s high-fee Bitcoin Trust (GBTC) in droves and move capital into the new spot ETFs, billions of dollars worth of Bitcoin are hitting the market. This selling pressure has driven Bitcoin’s price down 10% over the past week.
- Grayscale has transferred over 16,000 BTC worth $726 million to Coinbase to fund investor redemptions from its Bitcoin Trust (GBTC)
- Outflows from GBTC could create selling pressure that weighs on Bitcoin’s price, with some estimates that it could last 1-2 more months
- GBTC saw over $2.2 billion in outflows last week as investors exit to buy shares in new spot BTC ETFs with lower fees
- Bitcoin’s price has dropped around 10% since the launch of spot BTC ETFs in the US
- Analysts estimate there may be up to $25 billion worth of GBTC shares redeemed, which could continue to pressure Bitcoin’s price down to around $37,000
Grayscale has had to transfer over 16,000 BTC worth more than $726 million to its custodian Coinbase just to fund investor redemptions. The largest single-day transfer was over 11,000 BTC on Wednesday, promptly sending Bitcoin plummeting. And the pain may not be over yet.
Analysts estimate there could still be up to $25 billion worth of GBTC shares redeemed given the vast difference in management fees compared to competitors. At 1.5%, Grayscale charges over 3 times more than ETFs like BlackRock’s spot BTC fund. This incentive to switch positions has already triggered over $2.2 billion exiting GBTC last week.
Atlascap invest said that in the next 1-2 months, the selling pressure of Grayscale GBTC will directly affect the price of Bitcoin. At this outflow rate, the net outflow of Grayscale GBTC should have no more than two months of impact on Bitcoin price fluctuations. JPMorgan… https://t.co/qtAmVGzKJX
— Wu Blockchain (@WuBlockchain) January 19, 2024
The ongoing race for the exits has stunned many analysts who didn’t anticipate such an abrupt rotation. The bleeding has also raised questions around how much longer this will continue and how low Bitcoin’s price could be dragged down in the process.
Some estimates point to a further decline towards $37,000 based on technical indicators before finding major support. However, other industry leaders remain bullish that once the dust settles, the new ETFs will attract significant new inflows from institutional investors who previously faced barriers to crypto exposure.
Ultimately, the long-term impact may prove positive if the lower-cost ETFs succeed in drawing more mainstream capital into the digital asset space. But in the short term, the market could face extended volatility until the mass liquidation of GBTC shares subsides. Underlining this point, Bitcoin saw a more than 2% drop on Friday after Grayscale transferred another near $500 million worth to Coinbase.
With potentially weeks more of heavy BTC sales on the horizon, traders will be keeping a close eye on when outflows might peak. Once selling pressure alleviates, the pending inflows from new ETF investors could help balance dynamics. But until then, the path of least resistance seems to remain down.