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This week, Bitcoin saw a drop of over 14% despite the approval of historic spot crypto exchange traded funds. And interestingly, at the center of this volatility is digital asset manager Grayscale, which falls under the umbrella of crypto giant Digital Currency Group.
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The approval of the SEC to convert the Bitcoin Trust (GBTC) into a Bitcoin ETF led to investors quickly abandoning their positions, surprising analysts with the size of the sell-off. The Grayscale Bitcoin ETF marks its departure from its previous closed-end fund status, a time when investors could not redeem their shares for BTC. However, as an ETF, investors are largely cashing out.
Over half a billion dollars was withdrawn in the first few days, and in the past five days, the fund has seen over $2.2 billion in outflows, according to Bloomberg data. Interestingly, while GBTC is seeing these large outflows, other ETFs are seeing inflows. BlackRock’s iShares Bitcoin Trust (IBIT) is leading the way with $1.2 billion in inflows.
Large Bitcoin Selloffs: The Grayscale Detail
The underlying reason for this exodus is quite simple: investors are exiting their positions to realize their gains. Additionally, GBTC has the highest fee of any spot Bitcoin ETF in the US, at 1.5%. BlackRock’s IBIT, on the other hand, has a significantly lower fee, at 0.12% (but will increase to 0.25% after 12 months).
This high fee is considered another reason for investors’ desire to exit.
Grayscale’s Bitcoin sales are leading the company to transfer large amounts of BTC to American crypto exchange Coinbase to sell it. This is also contributing to the decline in Bitcoin’s price. Data on the chain from Arkham Intelligence shows that Grayscale has sent about $500 million worth of Bitcoin to Coinbase in the past six hours.
James Butterfill, research head of European asset manager CoinShares, says these outflows are likely explaining the recent decline in BTC’s price. “Further price weakness will depend on when GBTC holders stop selling,” he says, while also acknowledging that GBTC’s fees are quite high compared to the competition.
WHEN WILL THE BLEEDING STOP? I don't know, but this this is some serious daily outflows for The Nine to have to battle every single day.. they've done a great job so far but damn its a lot to ask.. pic.twitter.com/LqwPRETrQf
— Eric Balchunas (@EricBalchunas) January 19, 2024
Despite the outflows, Grayscale maintains that the fund is successful simply because of its trading volume. John Hoffman, Grayscale’s head of sales and distribution, told Decrypt, “GBTC dominates in trading volume, is the leading risk transfer vehicle, and has outperformed all spot Bitcoin ETFs since inception.”