Continuous Grayscale Dumping, What is the Impact of the Former "Bitcoin Winners"?

In the cryptocurrency space, Grayscale has always been one of the important investment institutions. As a subsidiary of Digital Currency Group, Grayscale has provided compliant cryptocurrency investment channels for investors through trust funds for many years, with its funds mainly coming from institutional investors and pension funds.

However, on January 11, after the Grayscale GBTC trust converted to a spot Bitcoin ETF, the situation changed dramatically. As of now, GBTC has seen a cumulative outflow of $3.45 billion, making it the main reason for the overall outflow of funds from Bitcoin ETFs at present. In contrast, the other 10 ETFs are still showing a net inflow.

Before the listing of the spot Bitcoin ETF, Grayscale has been a major investor in the cryptocurrency space. On January 11 of this year, when GBTC converted to an ETF, its management scale reached as high as $25 billion. Grayscale's single trust fund also includes mainstream crypto assets such as ETH, BCH, and LTC, reflecting its robust investment preferences.

These trust funds are essentially "one-way holdings", only inflows in the short term. Investors deposit BTC and ETH for arbitrage purposes, which not only increases the scale of Grayscale Trust but also brings benefits to the spot market, alleviating selling pressure.

In 2020, against the backdrop of the Bitcoin ETF being delayed for approval, Grayscale became the main channel for institutional investors to enter the crypto market, playing the role of a "bull market engine." It provided a way for qualified investors and institutions to access the crypto market, connecting investors with ETH spot.

In June 2023, as market expectations for Bitcoin ETFs heated up, the negative premium of GBTC began to narrow. It gradually rose from a historical low of 30% to close to 0, providing an opportunity for early investors to take profits.

For investors participating in the GBTC and ETHE trusts in the primary market, the negative premium has brought about significant losses. These trusts do not have a direct redemption mechanism, and investors can only sell at a loss in the secondary market. Some investors had previously bought large amounts of GBTC, betting on the elimination of the negative premium after it converted to an ETF in the future.

After GBTC was converted to ETF, the ongoing selling pressure has significantly increased. As of the latest data, GBTC's daily outflow has exceeded $640 million, setting a record for the largest daily outflow. In the first 7 trading days of the ETF, GBTC accounted for more than half of the total trading volume, indicating that new funds are primarily used to hedge against the continuous outflow of GBTC.

The management fee of up to 1.5% for GBTC is a significant factor in the outflow of funds, far exceeding the fee levels of 0.2% to 0.9% for other ETF products.

Currently, GBTC still holds approximately 500,000 Bitcoins (worth about $20 billion). In the near future, institutional investors may wait for the right opportunity to gradually absorb these holdings. This means that the selling pressure from GBTC may persist for a while, affecting the overall liquidity of the market.

Looking back, what was once seen as the "bull market engine" of Grayscale has now become a potential market risk factor. This reminds us that in the rapidly evolving crypto industry, over-reliance on a single institution or "whale" can lead to unexpected consequences. From this particular market cycle, we may learn more rational and diversified investment strategies.