February 24, 2024

Grayscale’s Bitcoin exchange-traded fund (ETF), GBTC, has seen an estimated $1.1 billion in outflows over the past three days of tradingThis trend comes as the fund’s long-standing discount to net asset value has narrowed to its lowest level in nearly three years. 

From Premium to Discount

An estimated $594 million exited the fund on January 16 alone, according to Bloomberg ETF analyst James SeyffartHe noted that other recently launched Bitcoin ETFs saw inflows, but likely not enough to offset the sizable outflows from GBTC. 

For years, GBTC offered an arbitrage opportunity for investors who borrowed money to buy shares and profit off the premium, which reached over 40% in 2019

However, when the premium flipped to a discount in early 2021, many investors became trapped, unwilling to sell at a loss. GBTC’s discount bottomed out at around -49% in December 2022.

Following GBTC’s conversion to a spot Bitcoin ETF in December, the discount narrowed to just -1.55%. This has triggered a rush of pent-up selling from investors looking to exit positions. The estimated $1.17 billion outflow from GBTC equals about 27,000 Bitcoin at current prices.

ARK Invest Begins Stacking Bitcoin in its ETF

While GBTC sees outflows, Cathie Wood’s ARK Invest has started accumulating Bitcoin in its recently approved ARK 21Shares Bitcoin ETF (ARKB). The fund currently holds 2,535 Bitcoin worth over $109 million, making it the 5th largest Bitcoin holder among ETF issuers.

ARKB is buying Bitcoin as ARK sold shares of the ProShares Bitcoin ETF (BITO) and other tech names in its Next Generation Internet ETF. Apart from Grayscale and ARK, several other major financial institutions have launched spot Bitcoin ETFs following regulators’ approval in 2022.

These include fund giants BlackRock and Fidelity. BlackRock’s spot Bitcoin ETF has accumulated 11,439 Bitcoins so far. Fidelity’s ETF holds 9,750 Bitcoin. Altogether, the nine approved spot Bitcoin ETFs besides Grayscale hold around 36,000 Bitcoin worth over $1.5 billion.

However, their exact holdings may vary from reported figures. Unfortunately, the outflows from GBTC and other sellers have put downward pressure on Bitcoin’s price. 

Bitcoin has held critical support around $42,000-$43,000 over the past week. This suggests underlying solid demand even amid the current selling activity.

Bitcoin’s ability to maintain support levels confirms its technical strength as it continues to find its bottom following last year’s crypto market crash.

With relatively bullish futures markets and long-term holders keeping their convictions, the market appears to be setting the stage for Bitcoin to break its malaise in 2023.

But amid the ETF shakeup, increased volatility is expected. If Bitcoin can successfully establish a price floor here, it could stabilize and begin to regain its bullish momentum as macroeconomic uncertainties ease.

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