Grayscale Dumps BTC Explained: Understanding short-term bearish but mid and long term bullish spot ETFs


Prior to the landmark approvals of the spot ETFs, Grayscale Bitcoin Trust (GBTC) was redeeming its shares by giving investors value against the US Dollar (USD). This means that they would not sell Bitcoin (BTC).

With this, Grayscale ascended to become one of the largest BTC holders, besides the pseudonymous Satoshi.

Following the approval of spot ETFs on January 10, and the subsequent trading beginning January 11, investors began to withdraw their money out of GBTC.

Among the reasons why the investors are pulling their money include:

  • The 1.5% discount that Grayscale is charging yearly as a management fee. This rate is almost 6x times higher than what other ETF issuers are charging. Refer to this on the fees wars article by FXS reporter Ekta Mourya. 
  • Many investors had acquired GBTC at a 40% discount. Now that the discount is at 0%,  they close their positions. FXS reporter Aaryaman Shrivastava tells you how GBTC discount has come to an end

Both instances warrant that GBTC sells BTC to pay it back.

Market watchers expecting GBTC to stop dumping should get their popcorn as this could go on for a while. This is because of the large bucket of $25 billion GBTC. X user @Ashcryptoreal says, "This can take a few weeks," adding that investors should expect possible horizontal consolidation for Bitcoin price, or in the dire case, BTC could start dumping as well, in the wake of selling pressure. 

Renowned economist Peter Schiff had also given his analysis of how long this could last, saying it was the overhead pressure from GBTC redemptions that weighed heavy on Bitcoin price upside potential.

In the end, investors will likely move their money from GBTC into other ETFs where there is lower management fees compared to Grayscale's 1.5% annual discount.  

With this panning out to be a long-term game, Bitcoin price is likely to rally once grayscale begins to rotate back in with an ETF product that competes with the others. The SEC determining that cash creations are a necessary for the spot ETFs played a key role in getting us to where we are, which means Grayscale must first sell before they can get back in the game.

Grayscale Bitcoin Trust sees $484 million in outflows

Grayscale Bitcoin Trust (GBTC) has seen $484 million in outflows on Friday as GBTC holders capitalize on open redemption options. With it Bitcoin price has also dropped upwards of 7%.  

In hindsight, the Grayscale Bitcoin Trust (GBTC) held over $25 billion worth of Bitcoin, which had been locked up for years because there was no option for selling. With the recent spot BTC ETF approvals, which inclined toward cash creates, the redemption option opened. This provided leeway for GBTC holders to exit the trust after years, which means selling the BTC on the open market.

According to data from Arkham Intelligence, Grayscale sent 4,000 BTC worth $183 million to a Coinbase Prime deposit address, suggesting that investors may be switching their assets to other ETFs or selling normally.

Also Read: Bitcoin Weekly Forecast: BTC crashes as GBTC dumps, but bullish outlook still not under threat

After trading of spot BTC ETFs began on Thursday, the numbers were shocking, with the latest reports showing that trading volume hit $4.5 billion during the first day of trading. Based on the report, about 50% of this was attributed to Grayscale's GBTC. 

 

Recent reports revealed that after the landmark approval on Wednesday, Spot BTC ETF trading volume hit $1.2 billion in 20 minutes, and almost $2 billion within the hour. Grayscale‘s GBTC led the train with $446 million, followed by IBIT and Fidelity’s FBTC in third place while Ark Invest’s ARKB took fourth place.

Spot BTC ETF trading volumes

According to James Seyffart, flows likely comprised the lion’s share of the trading volume, save for GBTC.

Eric Balchunas says these are "unreal first-day numbers" and expects the record to be broken today.

CryptoQuant data shows that Coinbase's Bitcoin trading volume over the counter (OTC) reached $7.7 billion on Thursday, marking the second-largest level in history.

In principle, this means that Bitcoin purchases over-the-counter may be related to the approval of Spot BTC ETF, with crypto exchange trading volume reaching $52 billion, levels last seen on March 21, 2023.

SEC approves all spot BTC ETF applications on January 10

In a landmark decision, the US SEC has approved all Bitcoin spot ETFs in a single, unprecedented decision on Wednesday, January 10.

This unexpected green light for the long-awaited financial instruments, confirmed in an official announcement, ignites immediate euphoria across the cryptocurrency industry.

SEC approves all spot BTC ETFs

The US SEC surprisingly gave the green light to the 11 spot ETF applications submitted by major players like Grayscale, Bitwise, Hashdex, Valkyrie, Ark 21Shares, Invesco, Fidelity, and others.

The decision comes after months of intense industry lobbying and a recent flurry of amended 19b-4 filings, hinting at growing pressure on the SEC to act.

The approval marks a paradigm shift, granting direct access to Bitcoin via ETFs for millions of institutional and retail investors who previously lacked options.

Notably, the Chicago Board Options Exchange (CBOE) had jumped the gun, announcing the listing of spot ETFs ahead of the approval and highlighting that trading would commence on Thursday. January 11.

Indeed, trading could begin on Thursday, with a bunch of the prospectuses going effective as S-1's approvals are being checked off.

Despite Spot BTC ETF approvals, the SEC does not endorse Bitcoin

Nevertheless, even though the commission greenlit the spot BTC ETFs, chair Gary Gensler said in a statement that it is not an endorsement of Bitcoin.

While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.

It comes after Gensler cautioned market participants about the risks of crypto investing, listing possible incompliance, market risk, and fraud, as part of the dangers. 

The original link to Spot BTC ETF approvals was taken down

The US Securities and Exchange Commission (SEC) has removed the original link showing that all Bitcoin exchange-traded funds (ETFs) have been approved. 

Approval link taken down

Grayscale to list GBTC to NYSE Arca as SEC approves spot Bitcoin ETFs

With this development, Grayscale has received the necessary regulatory approvals to uplist GBTC to NYSE Arca, with a spokesperson noting that they would be sharing a press release later. 

Crypto markets react to ETF approval

Bitcoin price has dipped almost 1% in the immediate aftermath of the news and currently trades at $45,976.

BTC/USDT 1-hour chart


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