Grayscale’s GBTC Exodus Shaking Up Bitcoin Market Dynamics

In January 2024, a market report from Bitfinex revealed that the drop in Bitcoin’s value was attributed to a significant sell-off of Grayscale Bitcoin Trust ETF shares. This sell-off was partly influenced by the bankrupt exchange FTX. The report from Bitfinex Alpha stated that the conversion of Grayscale’s GBTC trust to an ETF played a major role in the market correction, causing BTC to decrease from $48,700 to $38,600 within a few days.

The report pointed out that there were outflows of $4.3 billion following GBTC’s conversion to a spot Bitcoin ETF on January 16. BlackRock’s iShares Bitcoin Trust had the highest net inflows among individual spot Bitcoin ETFs, attracting $1.82 billion. Analysts at Bitfinex also noted that the flow of funds into the respective spot Bitcoin ETF was absent on January 20, indicating its impact on BTC price.

Despite the conversion from a trust, Grayscale’s GBTC remains the largest Bitcoin ETF with around $24 billion in assets under management, although it decreased from $28.6 billion. The report also mentioned that the conversion of Grayscale’s trust to an ETF allowed the bankrupt exchange FTX to sell significant shares, completely liquidating its holdings of 22 million GBTC shares, valued at nearly $1 billion.

Another factor highlighted in the Bitfinex report was the influence of fee rates on the sales of GBTC shares. Grayscale’s competitors currently charge fees ranging from 0.2 to 0.9 percent, while GBTC’s fee stands at 1.5 percent. This higher fee structure may have led investors to migrate from GBTC to other ETFs, particularly those managed by traditional finance giants with more experience in managing ETFs.

As the end of January approached, data reflected a decline in trading volume between Bitcoin ETF funds. The analysts at Bitfinex Alpha suggested that investors were seeking more cost-effective ways to gain exposure to Bitcoin, which impacted the movement of capital within the Bitcoin ETF space. As the month came to a close, ETF data indicated that the transfer of capital between different ETF funds was beginning to stabilize.