Bitcoin - Still 40 days of bear market?

Bitcoin drops despite the launch of ETFs. The reason is the withdrawals from Grayscale’s ETF, which could continue for another 40 days…

Grayscale spoils the party

BTC/USD has dropped about 10% since the launch of the ETFs. However, the equivalent of several billion dollars has flowed into them.

According to data as of January 22, a total of 648,326 bitcoins were held in ETFs. It was 622,000 bitcoins just before the launch of the ETFs on January 10, due to the existence of Grayscale’s GBTC Trust, which has since been converted into an ETF.

In all, nearly 100,000 bitcoins have been absorbed, but only about 26,000 BTC net. In other words, the ETFs are accumulating an average of 3,700 BTC per day.

The difference comes from withdrawals from the GBTC ETF. Indeed, Grayscale refuses to align with the management fees of the competition which are almost eight times lower (0.2%). As a result, many clients are packing their bags.

And the fact is that it is not possible to transfer bitcoins from one ETF to another. Investors are forced to sell their bitcoins to join a new ETF. Hence the downward pressure.

That’s a total of 68,000 bitcoins that have left the GBTC ETF in the first seven days of trading!

Here is the count that prevailed at the end of last week to get an idea of the orders of magnitude:

En net, environ 30 000 BTC sont venus abreuver les ETF.

Les sorties de l'ETF GBTC de Grayscale compensent pour le moment en grande partie le succès des ETF de BlackRock et consorts. pic.twitter.com/BGJUE4TMXn

— Nicolas Teterel #FixTheFilters (@NTeterel) January 23, 2024

Here is the distribution of bitcoins among the four largest ETFs at the time of writing:

-GBTC (Grayscale): ~536,000 BTC
-IBIT (BlackRock): ~40,000 BTC
-FBTC (Fidelity): ~34,000 BTC
-BITB (Bitwise): ~11,000 BTC

Why doesn’t Grayscale stem the bitcoin bleed?

Grayscale cuts juicy fees amounting to 1.5% per year, versus 0.2% for its competitors. This means that the fund could afford to lose 87% of its BTC and still be financially better off.

The calculation is easy. 1.5% of ~82,000 BTC is equal to 0.2% of the 620,000 BTC that the fund managed just before the launch of the new ETFs.

But what makes Grayscale’s leaders think they won’t lose more than 87% of their clientele?

Maybe Grayscale knows that clients holding more than 12% of the bitcoins won’t leave. For tax reasons? Indeed, selling ETF shares automatically triggers capital gains tax.

Another possibility: the leaders of Grayscale and its parent company, Digital Currency Group, are shorting bitcoin on the side. Therefore, it would be in their personal interest to liquidate all or part of the Grayscale ETF.

The same goes for their clients who are leaving. They probably realize that it is in their interest to wait until all the clients of the GBTC ETF have left. The goal being to take advantage of the downward pressure before making their rotation to other ETFs at a much better price.

The mystery deepens even more when we know that a large part of the outflows from the GBTC ETF came from liquidations related to the FTX bankruptcy. These represented about one billion dollars according to CoinDesk, which is nearly a third of the outflows.

Knowing that the bankrupt company Genesis also holds numerous shares of the GBTC ETF that will also need to be liquidated.

What timing…

In addition to this, there are the withdrawals from ETFs located on the old continent and other regions such as Brazil, Canada, etc. The exchange BitMEX deducts a net inflow of only 721 million dollars:

Overall Flow stats for ALL Bitcoin ETPs since 11th Jan 2024:

* New US ETFs: +$4,536m
* GBTC Outflow: -$3,447m
* BITO Outflow: -$143m
* Top 6 European ETP outflow: -$138.8m
* All 23 others Outflow (Rest of Europe, Canada, Brazil etc): -$86m

GRAND TOTAL INFLOW: $721m

— BitMEX Research (@BitMEXResearch) January 23, 2024

At the rate of 14,000 BTC per day, the GBTC ETF will be empty in 40 days. Enough time to accumulate some more sats at a cheap price before the inevitable Bull Run.