The Barometer of the Crypto Market: The Impact of Grayscale GBTC's Transformation into an ETF

Grayscale, as an important institution in the encryption currency investment field, has long provided compliant investment channels for investors. However, with the successful transformation of the GBTC trust into a spot Bitcoin ETF on January 11, the situation has undergone a dramatic change.

As of now, GBTC has accumulated outflows of $3.45 billion, becoming the main driver of overall fund outflows for Bitcoin ETFs. In stark contrast, the other 10 ETFs have all maintained a net inflow status. This means that GBTC has become the largest source of sell-off in the short term.

Looking back at history, Grayscale has been an important player in the crypto market since 2019. As a subsidiary of Digital Currency Group (DCG) established in 2013, Grayscale provided compliant investment channels for investors through trust funds before the listing of the spot Bitcoin ETF, with over 90% of its funds coming from institutional investors and retirement funds.

When GBTC transformed into an ETF, its management scale (AUM) reached 25 billion USD, making it a giant in the encryption custody field. In addition to Bitcoin, Grayscale also manages several mainstream encryption asset trust funds, including ETH, BCH, LTC, demonstrating a robust investment preference.

These trust funds are essentially "one-way investment" tools, allowing only capital inflow and making it difficult to withdraw, and have been regarded as the "treasure trove" of the crypto market. Investors choose to deposit funds for arbitrage purposes, which not only drives the growth of related trusts but also provides strong support for the spot market, alleviating selling pressure.

In the 2020 bull market, Grayscale was even seen as a major driving force in the market. Against the backdrop of the Bitcoin ETF not being approved for a long time, Grayscale became an important channel for institutional investors to enter the crypto market, enabling direct entry of incremental off-exchange funds.

However, with the rising expectations for the ETF, the negative premium of GBTC has begun to gradually narrow. From a 30% negative premium in July 2023 to now approaching zero, early investors have welcomed the opportunity to profit and exit. This process has had a significant impact on private investors who participated in the GBTC trust in the primary market, as these trust products lack a clear exit mechanism.

After GBTC transformed into an ETF, the continuous outflow of funds raised concerns in the market. As of January 23, the total trading volume of all spot Bitcoin ETFs in the first 7 trading days was approximately $19 billion, with GBTC accounting for more than half. This indicates that the incremental funds brought by the ETF are still in the stage of hedging against the continuous outflow of GBTC.

One important reason for the outflow of funds from GBTC is its management fee of 1.5%, which is much higher than the fee levels of other ETFs, ranging from 0.2% to 0.9%. In addition, a certain trading platform that is in bankruptcy proceedings has liquidated approximately $1 billion worth of GBTC shares, which has also intensified the selling pressure.

Looking to the future, GBTC still holds over 500,000 BTC ( worth about 20 billion dollars ), which will be an open game. Institutional investors and funds may wait for the right moment to gradually accumulate chips. This means that for a period of time in the future, the selling pressure of GBTC may continue to suppress the willingness of funds to flow in.

Looking back at 2020, those institutions that were once seen as the "bull market engines" have not only lost their momentum in the current environment but may even become potential risk points that trigger industry turmoil. For this rapidly evolving industry, abandoning excessive reliance on large institutions and re-evaluating the role of institutions may be one of the most valuable experiences we can gain in this special cycle.