The Bitcoin spot ETFs finally went live two weeks ago, but the price of Bitcoin has been on a downward slide since then. And the biggest reason is a company called Grayscale.
Grayscale has been dumping Bitcoin on the market to the tune of 10,000 BTC, with the biggest chunk of up to 25,000 BTC in a single day. And all of this is because market participants are theorizing that Grayscale cannot meet the fees similar to the likes of BlackRock and Fidelity.
Investors are currently fleeing from Grayscale in search for other players as other ETF providers like BlackRock already accumulated over $1.3 billion for their Bitcoin spot ETF, which is around 33,000 Bitcoins on their books right now.
Back in 2013, there was no way for traditional investors to invest in Bitcoin, so the Grayscale Trust (GBTC) was created.
If you bought shares of the trust, Grayscale would use your money to buy Bitcoin. As Bitcoin’s price went up, so would the value of your shares.
This worked great until the collapse of Three Arrows Capital (3AC) and FTX in 2022. Because of the interconnecting agreements between those companies, Grayscale began to destabilize and their investors started to panic.
Approval Of Bitcoin Spot ETFs
Now, fast forward to two weeks ago, where the eleven Bitcoin spot ETFs were finally approved, Grayscale was one of those providers. But unlike the other ten ETFs, Grayscale already had around 617,000 Bitcoins sitting in their trust.
So, when the ETFs launched on the stock exchange, Grayscale’s investors were not out there buying Bitcoin — they were actually selling their old holdings.
Even with BlackRock and Fidelity buying over a billion dollars each worth of BTC, the Grayscale ETF was almost entirely sell-side volume, and they were sitting on 4% of the global supply (which is around $30 billion).
Grayscale’s Bitcoin ETF Fees
In the last three days, all fingers have been pointing to Grayscale’s GBTC, and a lot of the reason why you have seen mass selling of Bitcoin is because of this strange unaltered high uncompetitive fee of 1.5% versus the next highest which is 0.8%.
Is The Price Going To Continue To Go Down?
Many forecasts anticipate a bigger drop, but I am a bit more neutral. The thing is, the other ETF providers manage over $10 trillion in assets. So, if even 0.5% of that converts into Bitcoin, it would send the price soaring. However, that kind of portfolio rebalancing happens slowly — over months, not days.
Right now, it does seem that the market weakness is due to Grayscale. However, can we blame Grayscale as they are trying to liquidate their holdings? That is where we have a debate. Some argue on why the company needs to sell because there are a lot of insiders that want to cash out. Another argument says that Barry Silbert, the former CEO of Digital Currency Group (DGC), has an enormous debt to repay due to the Gemini debacle that happened last year.
It is also worth noting that Grayscale is dumping as much as they can because they are forced to, as their investors are abandoning their investment products all for the fact that they cannot compete with the low fees being offered on by BlackRock and these other ETF providers. It could be a variety of reasons, or those reasons combined. Whatever the case is, everyone is eyeing on Grayscale as they could be doing this for a long time.