Bitcoin has bounced back from a recent slump as the selling pressure from the Grayscale Bitcoin Trust (GBTC) has largely subsided, according to JPMorgan (JPM) report on Thursday. The report said that bitcoin had fallen more than 20% in the two weeks after the debut of spot bitcoin exchange-traded funds (ETFs) in the U.S., which offered investors a cheaper and more convenient way to access the digital asset.
One of the main factors behind the correction was the profit-taking by GBTC investors who had bought the fund at a discount to its net asset value (NAV). GBTC has been one of the few options for U.S. investors to gain exposure to Bitcoin without holding the cryptocurrency directly. It remains the largest Bitcoin investment product, with over $20 billion in assets under management.
JPMorgan had previously estimated that around $3 billion would flow out of GBTC due to the discount-to-NAV trade, which would put downward pressure on BTC’s price as money left the crypto market. However, the report said that $4.3 billion had already exited GBTC, suggesting that most of the profit-taking had already occurred.
Given $4.3b has come out already from GBTC, we conclude that GBTC profit taking has largely happened already […] this would imply that most of the downward pressure on bitcoin from that channel should be largely behind us, said the analysts led by Nikolaos Panigirtzoglou.
Spot ETFs Impact Bitcoin’s Market Dynamics
The report also said that about $1.3 billion had moved from GBTC to the newly launched spot bitcoin ETFs, which charge lower fees and track the spot price of BTC more closely. This is equivalent to a monthly outflow of $3 billion from GBTC, which could continue or even accelerate if Grayscale, the sponsor of GBTC, fails to lower its fees or if other spot ETFs gain more market share and liquidity.
The report added that another source of selling pressure on BTC came from the bankruptcy estate of crypto exchange FTX, which had dumped around $1 billion worth of GBTC since its conversion to an ETF, according to a CoinDesk report. FTX acquired a large amount of GBTC shares at a discount in 2022, hoping to arbitrage the gap with the NAV.
Despite these headwinds, bitcoin has recovered from its recent low of $38,000 on Jan. 24, 2024, and is trading at around $40,000 on Jan. 26, 2024, according to CoinMarketCap data. The cryptocurrency is still down about 30% from its all-time high of $69,000, reached in November 2021.
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