4 crypto experts break down how one of the largest Grayscale Bitcoin unlock periods will affect the cryptocurrency market

Bitcoin
Bitcoin

  • A large swath of Grayscale Bitcoin Trust could hit secondary markets in July as six-month share lockups expire.
  • JPMorgan anticipates the lockup expirations will cause downward pressure on bitcoin’s price.
  • Other crypto experts say the hotly-anticipated lockup expiration may not create as much volatility as expected.
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A swath of shares in Grayscale Bitcoin Trust worth nearly 40,000 bitcoins will unlock in July in a hotly anticipated lockup expiration for the world’s largest bitcoin fund.

Due to the nature of the Grayscale Bitcoin Trust, institutional investors who buy the fund directly must hold the shares for six months before selling on the secondary market.

Many lockup periods are ending in July, and with 650,000 bitcoins in the trust, roughly 5% of the fund could be sold in the span of a few weeks. With Grayscale as the largest bitcoin fund, some investors may be worried a GBTC sell-off will exert downward pressure on GBTC and bitcoin prices more generally

July 17 is one of the largest days of the unlock period, with 16,240 bitcoin worth of GBTC becoming available to trade, according to Bybt.com.

Here’s 4 crypto experts on how the unlock will affect the bitcoin market.

Kraken Intelligence:

Researchers from Kraken Intelligence noted that the lockup expiration could potentially provide upside pressure on GBTC prices and on bitcoin.

“Large institutions make up a sizable proportion of the GBTC owners who’ll have their shares unlocked this month. As most likely bought to profit from the Grayscale Premium – the once-hefty, and lucrative, disparity between the fund’s net asset value and spot price – they also likely shorted bitcoin in the spot and futures market so as not to be inadvertently impacted by price volatility,” the researchers said.

If institutions decide to unwind their positions, they will have to buy bitcoin from the spot market to cover the GBTC. This could potentially result in the unlocking giving a boost to bitcoin, Kraken said.

JPMorgan

In June, JPMorgan noted that the GBTC share sale is a “headwind” for bitcoin.

“As a reminder to our readers, last December and last January had seen the highest monthly inflows into GBTC, of $2bn and $1.7bn, respectively, reflecting to a significant extent GBTC premium monetization trades by hedge funds and other investors. As the six-month lock up period expires in June and July these investors are likely to sell at least some of their GBTC shares, exerting downward pressure on GBTC prices and on bitcoin markets more generally,” JPMorgan said.

William Quigley, Tether co-founder

The co-founder of one the world’s largest stablecoins told Insider there may not be an immediate sell-off on the expiration dates because some of the institutions that bought into GBTC six months ago are now “underwater.”

“Some of them will certainly hold off selling immediately to avoid realizing a loss,” he said.

Quigley also noted that the Grayscale’s declining discount to net asset value (NAV) may indicate there’s less institutional demand for the once highly-sought after product. He doesn’t see this as an indication of waning institutional interest in bitcoin, but instead a sign institutions are acquiring bitcoin in other ways, like through Canadian ETFs.

Ryan Todd, The Block Crypto

Ryan Todd, a research analyst at The Block Crypto told Insider that the market may simply be on high alert for negative catalysts in the cryptocurrency market.

“I think the lockup is more of something to point to in the market doldrums of summer and post a 50%+ correction from bitcoin’s market top,” he said.

He added that with the declining discount to NAV, many investors may not sell their GTBC shares when the lockup expires. Investors may potentially need to buy more bitcoin, in fact.

“There’s even an argument to be made that some investors that targeted market-neutral trading strategies to harvest the GBTC premium by borrowing bitcoin and sending it to the trust 6 months ago will now have to buy back physical bitcoin in order to pay back the borrowed bitcoin,” said Todd.

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Grayscale confirms it will convert its popular bitcoin trust into a ETF

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Bitcoin’s meteoric rise has boosted crypto hedge funds

  • Grayscale confirmed its intent to convert its flagship bitcoin trust into an ETF.
  • In a blog post Grayscale said it always intended for the trust to become an ETF when permissible.
  • The announcement should relieve recent selling pressure GBTC shares, Fundstrat said.
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Grayscale Investments said in a blog post Monday it’s “100% committed” to converting its flagship Grayscale Bitcoin Trust into an exchange traded fund.

The world’s largest digital asset manager confirmed its intent to re-apply with the US SEC to offer an ETF after previous failed attempts to win approval.

“First and foremost we wish to make clear: we are 100% committed to converting GBTC into an ETF,” Grayscale said.

The Grayscale Bitcoin Trust was launched in 2013 and has been the go-to option for investors who want to add bitcoin exposure to their portfolio without directly buying the digital asset.

In the blog post, the investment company said that it always intended for its fund to become an exchange-traded fund when permissible. Grayscale first submitted an application for a bitcoin ETF in 2016 but ultimately withdrew iy because it determined the regulatory environment wouldn’t allow for a bitcoin ETF.

Now, several firms including Fidelity, NYDIG, and VanEck have applied for bitcoin ETFs in the US in the hopes that 2021 will finally be the year the SEC approves one.

“While several firms have submitted Bitcoin ETF applications in the form of an S-1 or 19b-4 to the SEC, we are confident in our current positioning and engagement with the SEC,” Grayscale said. “Today, we remain committed to converting GBTC into an ETF although the timing will be driven by the regulatory environment.”

Grayscale also said that the management fee of the GBTC fund will be “reduced accordingly” when the trust is converted to an ETF.

According to Fundstrat‘s lead digital asset strategist David Grider, the plan to convert the fund should relieve recent selling pressure on GBTC shares and will re-energize demand from bitcoin investors who are willing to contribute to the GBTC trust again.

“We think this is a very positive move for Grayscale to maintain its position as a leader as the largest listed Bitcoin product and this announcement should help close the negative premium gap,” Grider said in an email.

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Bitcoin ETFs are likely to replace the Grayscale Trust as the key driver of the crypto market, analyst says

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Competition is heating up in the bitcoin fund space

  • Analysts at CrossTower said the fall in the Grayscale Bitcoin Trust share price was bad for bitcoin.
  • Canadian bitcoin ETFs were likely to fill the gap in the future as interest grows, they said.
  • However, Grayscale remains the key public player, with more than $38 billion under management.
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New Canadian bitcoin exchange-traded funds are likely to replace the Grayscale Bitcoin Trust as the major driver of the crypto market, a report from digital asset firm CrossTower has predicted.

The report said the recent fall in the Grayscale Bitcoin Trust’s (GBTC) market share price should result in the trust buying less bitcoin as it becomes less attractive to big investors due to a quirk in its structure.

In February, GBTC bought $349 million of bitcoin, down from around $1.5 billion in January and December, according to Glassnode data cited in the report, which was written by former Wells Fargo analyst Martin Gaspar.

However, the new Canadian bitcoin exchange-traded funds – the first of their kind in North America – could become the major force behind the market, CrossTower said, with the Purpose Bitcoin ETF seeing around $730 million of inflows since launching.

“We expect these instruments to replace Grayscale as key drivers of the BTC price going forward,” Gaspar wrote.

“Demand for products that have lower management fees than GBTC’s 2%, such as these ETFs, will capture a portion of investor demand that… previously went to GBTC.”

Grayscale is itself interested in applying to launch an ETF in the US, should the regulators give the green light to such products, its chief executive Michael Sonnenshein told Insider last week.

Shares in the Grayscale Bitcoin Trust have fallen around 10% in the last month, despite the price of bitcoin hitting a record high of close to $62,000.

Nonetheless, Grayscale remains the biggest public owner of bitcoin, according to Bank of America. The bitcoin trust had more than $38 billion of assets under management as of Thursday, and its daily trading volumes are multiples higher than those of Canada’s bitcoin ETFs.

Yet the fall in the share price means the Trust is now consistently trading at a discount to the value of its underlying holdings, which CrossTower said was likely to result in GBTC’s bitcoin purchases slowing.

This is because GBTC’s formerly hefty premium made it an attractive purchase for hedge funds, who could buy a slice of the trust at face value in exchange for bitcoin and then flip it for more on the open market 6 months later.

Now GBTC trades at a discount, bitcoin inflows have slowed, CrossTower said. It wrote: “This is a net negative for bitcoin as Grayscale purchases of BTC were substantial drivers of the BTC price in recent periods, in our view.”

Gaspar said: “We expect ETFs to fill the inflow gap as awareness grows and as investors prefer the liquidity of an ETF to trusts.”

The Purpose Bitcoin ETF (BTCC) – the first to launch in Canada – saw inflows of around $730 million from mid-February to March 15, taking its total holdings to 11,711 bitcoin, the report said.

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The Grayscale Bitcoin Trust is now the largest public holder of bitcoin, but competition is heating up

FILE PHOTO: People walk past a board with the logo of Bitcoin in a street in Yerevan, Armenia September 9, 2019. REUTERS/Anton Vaganov/File Photo
  • The Grayscale Bitcoin Trust is now the largest public holder of bitcoin, according to Bank of America.
  • The trust likely owns 700,000 bitcoin, or about 3.5% of total supply, BofA said in a note on Wednesday.
  • But competition is heating up as Osprey launches a rival bitcoin trust and several ETFs apply for approval.
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The largest public holder of bitcoin is Grayscale, which operates the Grayscale Bitcoin Trust, Bank of America said in a note on Wednesday.

The trust, which trades like a stock on the over-the-counter market, likely owns 700,000 bitcoin, which represents about 3.5% of total supply and is worth more than $31 billion, BofA said. The trust has $36.1 billion in assets under management as of Tuesday and has often traded at a premium to its underlying bitcoin holdings.

“The trust has been steadily buying bitcoin over 2020, especially in 4Q20 and has become one of the 5 largest holders of the cryptocurrency,” BofA said.

The Grayscale Bitcoin Trust launched in 2013 and is the go-to option for investors who want to add bitcoin exposure to their portfolio without directly buying the cryptocurrency. For years, Grayscale’s trust has been the only option for investors looking for easy access to bitcoin, as the SEC has blocked the launch of bitcoin ETFs over the years.

Grayscale has been able to take advantage of being the only option for investors by charging a hefty 2% annual fee, but competition is beginning to heat up.

Last month, the Osprey Bitcoin Trust launched with an annual fee of 0.49%, significantly undercutting Grayscale’s fees. The Osprey Trust has already attracted $103 million in assets under management as of Tuesday.

February also saw the first launch of a bitcoin ETF in North America, as Canada approved the Purpose Bitcoin ETF, which trades on the Toronto Stock Exchange. Issuers in the US that have filed applications with the SEC for approval of a bitcoin ETF include VanEck, WisdomTree,

Even Grayscale is looking to launch its own bitcoin ETF, as Grayscale CEO Michael Sonnenshein told Insider earlier this month. Recent job listings from the firm have zeroed in on ETF specialists, signalling the firm’s expected move into the space if the SEC grants approval.

Whether the Grayscale Bitcoin Trust will be able to hold onto its title as the top public holder of bitcoin as the cheaper Osprey Bitcoin Trust gains its footing and if the SEC approves bitcoin ETFs remains to be seen.

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The Grayscale Bitcoin Trust’s recent plunge has its shares trading at a discount to the cryptocurrency

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The Grayscale Bitcoin Trust has fallen sharply along with the cryptocurrency itself

  • The Grayscale Bitcoin Trust plunged this week as the price of bitcoin has tumbled.
  • The trust’s share price closed at a 3.77% discount on Thursday, a sharp reversal from recent hefty premiums.
  • The bitcoin price itself has plunged around 20% this week, the biggest weekly drop since March 2020.
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The Grayscale Bitcoin Trust’s shares have plunged almost 20% this week, marking the biggest drop in the world’s largest bitcoin fund in close to a year.

Grayscale’s closing price of $45.64 on Thursday meant the fund’s public shares had fallen more than bitcoin itself over the week.

The trust’s shares closed at a 3.77% discount to net asset value on Thursday, a sharp reversal after trading at hefty premiums as the bitcoin price soared in recent months. It is the first discount since March 2017, according to Bloomberg data.

Investors have sold shares in the Grayscale Trust at a rapid rate over recent days as bitcoin has tumbled from a high of $58,000 on Sunday. The fund has a total of $32.83 billion in assets under management, according to Bloomberg.

The fall into discount territory highlights the extent to which investors have cooled on the fund this week. Its public shares traded at premiums above 15% for much of January as investors used the fund as a key way to gain exposure to bitcoin.

Bitcoin was down around 8.6% to $46,669 as of 9.25 a.m. ET on Friday. It had shed close to 20% over the week, the worst decline since March last year, as investors balk at the sky-high price.

Yet most bitcoin bulls are unconcerned about the recent drop. They argue it represents a good buying opportunity and predict that the price will continue to pull higher.

Katharine Wooller, managing director of UK digital asset exchange Dacxi, told Insider that corporate interest from the likes of Tesla should keep supporting bitcoin.

“Be warned however, bitcoin is known to significantly correct,” she said. “Whilst the medium trend is positive for holders, it is both the sign of a healthy market and a buying opportunity.”

Grayscale chief executive said that it was “certainly a risk” that the GBTC’s premium disappears, at the Bloomberg Crypto Summit on Thursday.

“But ultimately price discovery in GBTC every day is driven entirely by market forces,” he said.

(This article has been corrected. It previously said there had been large outflows from GBTC, when in fact the Trust does not operate a redemption program.)

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Cathie Wood’s ARK Invest now holds more than 7 million shares in the Grayscale Bitcoin Trust

Cathie Wood

The asset manager ARK Invest boosted its holdings in the Grayscale Bitcoin Trust in the fourth quarter of 2020, according to a recent filing with the Securities and Exchange Commission.

Cathie Wood’s ARK, which manages assets of about $50 billion, bought 2.14 million additional shares in Grayscale’s digital-currency investment product, bringing its total holdings to 7.31 million shares.

Grayscale Bitcoin Trust, the world’s largest bitcoin fund and the first of its kind, enables investors to speculate on and gain exposure to bitcoin in the form of a security without having to buy or store the digital token directly. Shares in the investment vehicle are part of a range of traditional finance products that track bitcoin prices.

The trust holds over 649,130 bitcoins, or roughly 3.1% of bitcoin’s supply, according to CoinDesk. Its website says its assets under management are about $31 billion.

As of Tuesday, ARK’s new share position in the Grayscale product was about $351 million. The firm’s Next Generation Internet ETF holds shares in the trust.

Read more: GOLDMAN SACHS: These 40 heavily shorted stocks could be the next GameStop if retail traders target them – and the group has already nearly doubled over the past 3 months

The price of bitcoin rose to $49,998 on Tuesday before slipping back. Interest from Wall Street institutions added momentum to its rally.

Wood predicted earlier this month that bitcoin would shoot higher this year. “Bitcoin is only [at] roughly a $600 billion market cap,” she told Yahoo Finance. “So even half the size of Apple or Amazon, right now. Doesn’t that put it into perspective? And yet, it is a very big idea, I think. A much bigger idea than Apple or Amazon.”

ARK has five exchange-traded funds run by Wood and her team of analysts that actively invest in companies they believe will change the world through “disruptive innovation.”

Other companies that Ark invested in during the fourth quarter were Tesla, Square, Roku, Pinterest, DocuSign, Alibaba, Snapchat, PayPal, and Netflix.

Read more: Canadian regulators just approved the world’s first Bitcoin ETF. Here are the 5 things investors need to know about the outlook for a US version.

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