Bitcoin falls to its lowest level since the approval of the spot ETF, is GBTC the "culprit"?

Author: Mary Liu, BitpushNews

According to data from Bitpush terminal, Bitcoin prices fell again by 4.5% on Thursday, dipping to a one-month low of $40,800. Since the approval of the new spot Bitcoin ETF by the SEC on January 11, Bitcoin has only experienced a brief rise and has now dropped by about 13%.

The performance of crypto-related stocks has also been dragged down. The largest cryptocurrency exchange in the U.S., Coinbase, fell about 6.7%, down 17% since the approval of the spot ETF. Bitcoin miner Marathon Digital dropped 6.9%, and the coin-holding specialist MicroStrategy fell 3%.

GBTC Outflow Could Reach $10 Billion, Selling Pressure Remains

Traders are closely monitoring the fund flows of ETFs. Many industry insiders believe that the selling pressure from Grayscale's GBTC may be the main culprit behind this round of declines.

Analysts at JPMorgan, led by Nikolaos Panigirtzoglou, stated on Thursday that if investors in Grayscale's spot Bitcoin ETF (converted from its flagship GBTC) continue to take profits, Bitcoin prices may face additional downward pressure in the coming weeks.

GBTC was established in 2013 and had over $28 billion in assets under management when it converted to an ETF. According to The Block data, on January 17, GBTC saw an outflow of $451 million, and since converting to a spot ETF, the fund has experienced about $1.6 billion in outflows.

Some of the funds have been absorbed by other spot ETF products. Michael Safai, founding partner of quantitative trading firm Dexterity Capital, stated, "Many investors want to wait until Grayscale's negative premium narrows significantly before exiting their positions. Now that the negative premium has almost disappeared, some traders may have sold and are waiting to re-enter the ETF as soon as possible."

BlackRock's spot Bitcoin ETF (IBIT) has seen inflows exceeding $1 billion, becoming the first ETF in its category to break this milestone.

Fidelity Investments followed closely behind, with its FBTC seeing an inflow of $358 million yesterday, the highest single-day inflow since the fund launched a week ago, bringing total inflows to about $880 million. BlackRock and Fidelity attracted 68% of the inflows from nine new ETFs in the market, totaling nearly $2 billion.

Among the 11 spot Bitcoin ETFs, Grayscale has the highest management fee in the industry at 1.5%. Franklin Templeton's 0.19% is the lowest, but its recent inflows account for less than 2% of all products. Ark Invest launched with zero fees in the first year, followed by a fee of 0.21%. The world's largest asset management company, BlackRock, charges 0.12% in the first year and 0.25% thereafter.

JPMorgan analysts stated in a report that the situation for GBTC could worsen, as the investment bank estimates that the fund could see outflows of up to $10 billion.

JPMorgan stated, "Liquidity and market depth are also important, but if other spot Bitcoin ETFs reach critical mass in terms of size and liquidity, GBTC will also face risks in this regard."

Liquidity generally refers to the ability to sell assets for cash. Reduced liquidity poses risks to investors, as they may find it difficult to sell shares. The report stated, "If GBTC loses its liquidity advantage, there could be more capital exiting, possibly an additional $5 billion to $10 billion."

The outflow of funds is not only from institutional investors; retail investors seem to be shifting from exchanges to cheaper spot Bitcoin ETFs. JPMorgan noted, "Bitcoin wallets from retail investors have recently shrunk."

Other ETF Products Also Experiencing Outflows

K33 research analyst Vetle Lunde stated that even before U.S. regulators approved it, there were already a large number of spot Bitcoin products trading globally. He mentioned that, in fact, global exchange-traded products (ETPs) currently hold over 864,000 Bitcoins, and from a certain perspective, the incremental growth of U.S. trading products has been relatively small so far.

Lunde also pointed out that aside from the outflows from GBTC, there has been a significant outflow from ETPs in Canada and Europe over the past week as investors take profits and/or allocate funds to cheaper U.S. ETFs.

There is also the ProShares Bitcoin Strategy ETF (BITO), which recently managed assets exceeding $2 billion. Lunde stated that although this futures-based ETF does not hold Bitcoin, it accounts for 36% of the open interest in Bitcoin contracts on the CME exchange. He added that futures-based Bitcoin ETFs collectively account for 48% of the CME's Bitcoin open interest.

Lunde believes that as BITO and other futures-based funds experience outflows, they will need to close (sell) their long positions in the futures market, which could put further pressure on Bitcoin prices.

Bartosz Lipiński, CEO of trading platform Cube.Exchange, stated, "The hype around ETFs has diminished, and traders' attention may shift elsewhere. Current options positioning indicates support around $40,000, which is a major psychological price point."

Independent market analyst Michael van de Poppe advised investors on the X platform: "Do not short BTC and hold a negative outlook; remember to buy the dip and hold."