Since the commencement of the year, investors have been actively securing shares of the Grayscale Bitcoin Trust (GBTC), anticipating its ETF conversion. These shares have consistently traded at a discount compared to the intrinsic value of its bitcoin holdings.
The underlying motivation appears to be the anticipation of a conversion to a spot bitcoin Exchange-Traded Fund (ETF), with traders aiming to capitalize on the potential price differential.
This suggests that a substantial number of GBTC traders may be inclined to liquidate their positions following the ETF conversion. To assess the potential value of shares to be sold during this conversion, JPMorgan analysts meticulously scrutinized GBTC inflows since 2023. Their analysis led to an estimated value of approximately $2.7 billion.
JPMorgan Analysts Decode $2.7B GBTC Outflow Projection
In their report, the analysts provided a detailed overview of their methodology. They combined the daily signed dollar volume to derive a net cumulative flow estimate.
This estimate amounts to approximately $2.5 billion since the beginning of the year. This figure increases to nearly $2.7 billion when factoring in the covering of short interest during the same period.
Given the speculative nature of these purchases, driven by the expectation of GBTC’s transition to an ETF, it is foreseeable that investors will divest to secure profits upon the ETF conversion.
The inquiry into potential outflows arises due to investors capitalizing on significant share discounts. They did so in anticipation of profiting when the discount to net asset value narrows post-conversion. Presently, the Grayscale Bitcoin Trust discount to net asset value is below 10% for the first time since July 2021.
The projected $2.7 billion outflow is considered the minimum by JPMorgan analysts. There is the possibility of a more substantial figure if GBTC’s current fee of 200 basis points is not substantially reduced post-ETF conversion.
The analysts anticipate heightened competition and fee convergence in the bitcoin ETF space once the U.S. Securities and Exchange Commission (SEC) approves spot bitcoin ETFs.
ARK 21Shares Sets GBTC Fee Standard Amid JPMorgan’s ETF Conversion Analysis
The ARK 21Shares Bitcoin ETF application, indicating an 80 basis points fee, sets a benchmark for the Grayscale Bitcoin Trust to retain its dominance as the largest and most liquid bitcoin fund. The analysts posit that over time, investors gravitate towards the most cost-effective and liquid ETFs.
Regarding the potential impact of the outflows on the market, the analysts highlight that a complete exit of the projected $2.7 billion is expected. They emphasize that this exit could exert significant downward pressure on bitcoin prices.
However, the analysts anticipate that a considerable portion of this amount will shift into other bitcoin instruments. Specifically, this movement is expected in the emerging spot bitcoin ETFs post-SEC approval. This shift is seen as a measure to mitigate potential negative market effects.
JPMorgan: Positive Outlook for Binance After U.S. Agencies Settlement
The analysts acknowledge the positive implications of Binance’s recent settlement with U.S. agencies, reinforcing their stance from a prior note.
They assert that the settlement is favorable for Binance and the broader crypto industry. Furthermore, they expect Binance’s market share losses to be contained and possibly reversed as the implications of the settlement become clearer.
Additionally, the settlement aligns with the ongoing trend towards regulated crypto entities and instruments, attracting traditional market participants and investors.