The Impact of Grayscale’s ETF on Bitcoin’s Price

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Written by

Pantera

Bitcoin Is Cash

11 months ago

Topics: BTC, Bitcoin, Cryptocurrency, Bitcoin Cash, Blockchain, ...

Is A ‘Sell the News’ Event on the Horizon?

The conversion of Grayscale’s GBTC Trust into a spot ETF could have a negative impact on the price of Bitcoin (BTC).

The market has bought the rumor, and we can not ignore the second part of the popular quote (buy the rumor, sell the news). There is a possibility that the market could sell the news, leading to a substantial drop in the price of BTC.

Over the next couple of years, we may see a repeat of the BTC cycles, and it is worth noting that ETFs could have a positive impact on the price of cryptocurrencies.

However, the conditions for an explosive new bull run are not there yet, and we shouldn’t exclude the possibility the market will experience a mini-bear phase before that.

Speculators maximize the potential for profit by betting on these events, and Grayscale’s GBTC has witnessed vast interest since the start of the year with billions of dollars of inflows in the secondary OTC market.

Therefore, the price of BTC can significantly dip as new (and older) investors of GBTC rush to liquidate as soon as trading begins.

Analysts Support The Bearish Scenario

Several ETF applications have a deadline at the start of January 2024, which means we might expect to hear more news this December.

According to JPMorgan analyst Panigirzoglou, GBTC could witness “outflows worth at least $2.7 billion” during the GBTC conversion into an ETF.

The predicted exodus of investors from GBTC will have the potential to send the price down and revisit cycle lows (a move that will also align with the historic price cycles of BTC).

Therefore, perhaps the ETFs will not be bullish for BTC (at least not immediately) but a sell-the-news event, as we’ve previously witnessed with the launch of the CME and Bakkt Futures.

CME paved the way for Wall Street futures trading of Bitcoin, with many suggesting it was the ultimate “sell the news” event. CME launched Bitcoin futures in December 2017, coinciding with the peak of the bull run and the beginning of a lengthy (two-year) bear market.

Bakkt Bitcoin Futures launched in September 2019 and allowed Cash-settled futures (unlike CME’s BTC-settled futures). Yet, Bakkt was another sell-the-news event. Bitcoin entered a new mini-bear market that lasted several months until the events of March 2020 and the macroeconomic and social conditions (with an unlimited QE by the FED) assisted the cryptocurrency market.

We have several funds applying for Bitcoin spot ETFs, which probably the SEC will have to accept despite the political pressure against them.

The Great GBTC Discount (Grayscale’s Bitcoin Trust)

Because of the significant gap between GBTC and the spot price of Bitcoin (the discount dropped as low as 48%) and the increased odds of the SEC accepting Grayscale’s proposal to turn the GBTC trust into an ETF, traders bought GBTC massively in 2023.

The GBTC discount currently stands at 10% (lower than the spot price of BTC in exchanges), having significantly retraced since around 2.5 Billion dollars entered GBTC on OTCQX (the only market GBTC trades).

And we should expect most of these volumes to become outflows once the ETF begins trading.

Most speculators see this as the trade of the year and risked significant funds on GBTC’s potential to transform into a Bitcoin ETF.

However, the main event of 2024 will be the BTC halving (and the speculation that surrounds it), a halving that could also be the last one of significance and a tipping point in the excessive outperformance of the price of BTC.

With several spot ETFs active, institutional flows could be the decisive factor to drive the price of BTC to $100k+ in 2024.

In Conclusion

While finance is exhibiting a strong interest in cryptocurrency, the real-life adoption will be determined by the free market and not the SEC.

The market will identify the use cases and benefits of cryptocurrencies, and the end users will decide their practicality and usefulness.

As finance evaluates the scalability-stagnated BTC version of Bitcoin, it will also assess whether it can serve as a reliable store of value or gain meaningful adoption with the custodial version of the Lightning Network.

Besides Bitcoin (BTC), finance acknowledges the qualities and significance of other cryptocurrencies such as Bitcoin Cash, Ethereum, and Litecoin.

Looking ahead, the cryptocurrency market is projected to continue its positive momentum over the next year.