Why is Bitcoin dropping?

Despite the fanfare launch of ETFs, bitcoin has collapsed to $42,000. Why?

The cause: the GBTC Trust

Grayscale launched the very first publicly traded bitcoin fund in the United States as early as 2013. This Trust, named GBTC (Grayscale Bitcoin), trades on the OTCQX market.

For several years, Grayscale had been lobbying the SEC to transform its Trust into an ETF, without success. Everything changed on August 29, 2023, when the District of Columbia Court of Appeals ruled in its favor.

This verdict was the second significant milestone towards ETF validation after BlackRock entered the fray two months earlier. The SEC finally approved all ETFs at once on January 10th.

However, Gary Gensler seems to have been mischievous. The SEC chairman knew that GBTC’s clients would move to ETFs that offer eight times lower management fees.

That’s why the SEC insisted that all transactions to and from ETFs must be made “in cash,” not “in-kind.” As a result, clients leaving the GBTC cannot simply transfer their bitcoins. They have to sell everything for dollars first.

In other words, the shift from the trust to ETFs automatically triggers a dump of bitcoins on the market. Hence the downward pressure…

GBTC is 600,000 bitcoins…

In two days, nearly 30,000 bitcoins were devoured by the 10 ETFs. That’s about $1.4 billion. Subtracting the net outflows from the GBTC Trust ($579 million, equivalent to 14,000 bitcoins), we get net inflows of +$821 million.

But then, why is bitcoin down if we have such large net inflows despite GBTC’s fund sales?

Because the ETF managers already held bitcoins in anticipation of D-Day. It’s therefore likely that they didn’t have to buy $821 million worth of bitcoin. It’s thus the sales from the GBTC Trust that impact the market most in the short term.

We’re in a period of market adjustment. #Bitcoin ETF’s just launched with billions in trading volume and BlackRock just took 11,500 BTC off the market. Meanwhile, GBTC holders are rotating out, pushing price down, and $MSTR is trading below BTC par value. pic.twitter.com/73hOFBxTK1

— Samson Mow (@Excellion) January 13, 2024

Another factor to consider is that several major US banks do not allow their clients to invest in ETFs. This includes Citi, Bank of America Merrill Lynch, Edward Jones, UBS, etc. Therefore, a number of GBTC Trust clients cannot yet make their rotation.

Nevertheless, it’s 11,500 BTC that BlackRock has already had to set aside to meet demand. That’s about 1/3 of the pie. Fidelity (FITB) and Bitwise (BITB) complete the podium:

In 2 trading days nearly 30,000 #Bitcoin was bought by the 10 newly approved spot $BTC ETFs👇$IBIT $FBTC $ARKB $BITB $BRRR $BTCO $HODL $EZBC $BTCW $DEFI $GBTC pic.twitter.com/MmX5JQFiDP

— CC15Capital 🇺🇸 (@Capital15C) January 15, 2024

In total, more than 30,000 bitcoins were absorbed by the ETFs in just two days. That’s nearly 33 days of BTC production. And 66 days before the “halving”…

At this rate, the 1.8 million BTC present on exchanges will be used up by next July. Bearing in mind that not all are for sale.

Patience; the green candle is coming.