January 25, 2024 at 10:50 GMTModified date: January 25, 2024 at 10:50 GMT
January 25, 2024 at 10:50 GMT

GBTC sees reduced outflows, market remains cautious

Following its conversion to an ETF, GBTC, the largest spot Bitcoin ETF, has experienced notable outflows for more than two weeks.

GBTC sees reduced outflows, market remains cautious

The Grayscale Investments’ Bitcoin Trust (GBTC), known for being the largest spot Bitcoin ETF, has been facing significant outflows for over two weeks following its conversion to an ETF.

However, recent developments indicate a potential shift. The daily outflows from GBTC have now reached their lowest point since its launch, sparking a glimmer of hope among investors and market analysts.

According to the latest data, GBTC outflows amounted to $429 million, marking a 33% decrease. This reduction has led some market observers to speculate that the ongoing multibillion-dollar Bitcoin sell-off might be slowing down.

Competitive landscape and challenges for GBTC

As of Thursday, GBTC’s assets were valued at around $20 billion, as per the firm’s website. 

In contrast, competing Bitcoin ETFs by BlackRock and Fidelity have seen their asset bases grow to approximately $1.60 billion and $1.50 billion, respectively, benefiting from consistent net inflows.

The higher expense ratio of GBTC, even after a reduction from 2% to 1.5% upon its ETF conversion, has been a point of concern. Competitors offer lower expense ratios, ranging between 0.19% and 0.39%. 

Matteo Greco, a research analyst at Fineqia International, noted that the initial structure of GBTC, which restricted redemptions and led to selling shares at a significant discount on the secondary market, might have contributed to the high outflow activity in the initial weeks of its ETF trading. 

However, he believes that surpassing GBTC’s assets under management will be challenging.

Grayscale’s victory in court against the Securities and Exchange Commission last August was a key factor in the approval of US spot Bitcoin ETFs. A Grayscale spokesperson highlighted, “GBTC has already cemented its place as the go-to Bitcoin ETF in the United States”, citing its market-leading liquidity and operational success over a decade.

Caution amidst uncertainties

Despite the slowdown in outflows, Bloomberg ETF analyst, Eric Balchunas, cautions that the outflows from GBTC are still significant. 

He points out the difficulty in predicting when the outflow trend might end, given the “too many unknowns” in the current market scenario. Over nine trading days, GBTC has seen an outflow of 106,092 $BTC, approximately $4.4 billion.

Adding to the complexity, Arkham Intelligence, a blockchain tracking firm, has raised concerns about the potential misinterpretation of GBTC transaction data. 

They explain that the outflow data might be divided between Coinbase Prime and new GBTC custody addresses, indicating that not all transferred $BTC is being redeemed. This is due to the nature of Bitcoin transactions, where outputs are often split among multiple addresses.

Bitcoin’s price struggles below $40K

In the midst of these developments, Bitcoin’s ($BTC) price has been fluctuating. Although it briefly surpassed $40,000, it was trading below this threshold at the time of writing, down by over 6% weekly. 

Currently, Bitcoin is priced at $39,977, showing a downward trend on the charts.

Matt Hougan, a Bitwise executive, commented on the recent price movements, attributing them to an “expectations-led” sell-off rather than being directly caused by the ETFs. 

He explained, “The ETFs are net buyers of Bitcoin. This is an ETF expectations-led sell-off. The market front-ran the ETF approval by piling into both spot Bitcoin and Bitcoin derivatives.”