Did Grayscale's Sell-Off Cause a Sharp Decline in BTC Despite Spot ETF Approval？

Since the SEC approved the Bitcoin spot ETF, the price of Bitcoin has experienced fluctuations. After the approval, it reached a peak of over $48,000, followed by a decline, going through a period of consolidation around $46,000 for some time, and then falling to a low of below $42,000. Currently, it stabilizes around $43,000, with a 7-day decrease of 1.69%.

According to Yahoo Finance data, the spot Bitcoin ETF had a trading volume of $4.6 billion on the first day and a total trading volume of $3.1 billion on the second day, with a cumulative total trading volume close to $7.7 billion. Among the issuers of the newly launched spot Bitcoin funds, BlackRock led on Friday with a trading volume of $564 million, while Fidelity had a trading volume of $431 million.

However, both were surpassed by Grayscale's GBTC in terms of trading volume. The ETF had a trading volume of $2.29 billion on Thursday and $1.83 billion on Friday, accounting for more than half of the total trading volume.

According to BitMEX Research statistics, on the second day of trading for the spot Bitcoin ETF, GBTC saw an outflow of $484 million, bringing the total outflow for the first two days to $579 million.

The Connection Between Grayscale's Historical Negative Premium and Current Events

From a data perspective, the once significant discount on trust units has almost disappeared since the conversion to an ETF. In December 2022, the discount reached as high as 50%, but it has since narrowed with the market recovery and diminishing expectations regarding the ETF. As of Monday, the discount has shrunk to 5.6%.

This phenomenon can be attributed to the structural differences between trusts, such as the former GBTC, and ETFs.

Trusts, like the previous GBTC, are closed-end, meaning they issue a fixed number of shares during the initial public offering (IPO), and these shares are then traded on the secondary market. Once issued, the number of trust shares cannot be increased or decreased based on market demand. Therefore, the market price of the trust is primarily determined by the supply and demand relationship between buyers and sellers, which can result in a significant disparity between its market price and the actual value of its held assets (Net Asset Value, NAV). If demand for the trust declines, its market price may fall below NAV, leading to a discount.

ETFs are open-end, allowing Authorized Participants (APs) to create or redeem ETF shares when needed. These APs can exchange cash or assets with the ETF manager to create new ETF shares or redeem existing ones based on market demand for ETF shares. This flexible creation and redemption mechanism ensures that the market price of an ETF is usually closely associated with its Net Asset Value (NAV). For example, if ETF shares are trading below NAV, APs can purchase these undervalued shares and redeem them, obtaining assets equivalent to their value. This operation not only brings profits to APs but also helps elevate the market price of ETF shares, bringing it closer to NAV.

So, investors seeking financial returns who bought in at lower levels are likely to sell now as the discount disappears. This may result in Grayscale selling Bitcoin to redeem cash for those investors selling GBTC shares.

Did Grayscale Sell BTC Causing Selling Pressure？

From the data on Arkham, there doesn't seem to be a significant sell-off behavior. Currently, based on the marked Grayscale addresses, Grayscale holds approximately 617,000 Bitcoins, valued at around $26.6 billion, with outflows totaling around $1.67 billion in the past few days. This indicates that Grayscale hasn't been forced to sell a substantial portion of its Bitcoin holdings due to continuous selling of GBTC shares by clients, and the volume of Bitcoin sold remains relatively small.

One possible perspective is that Arkham may not have recorded all Grayscale addresses, and the recorded Grayscale addresses may not be accurate, so this statistic may have missed some BTC sales and transactions, making the reported $1.67 billion in sell-offs less precise.

Another perspective involves the fee issue related to all Bitcoin spot ETFs. Currently, according to Bloomberg analysts' statistics, Grayscale's GBTC has the highest management fee among all ETFs.

It can be seen that the fee rates issued by issuers such as Franklin and Bitwise are relatively low, while Grayscale's fees belong to the highest tier, approximately 1.5%. If investors are unwilling to commit to this 1.5% management fee, they can choose to sell GBTC shares and invest in other ETFs with lower fees. As this ETF conversion involves cash redemption, selling GBTC shares can only be done in USD, not in Bitcoin, which is likely to create selling pressure and reduce prices.

This leads to the argument held by many on Twitter: not selling now does not mean there won't be selling in the future. If more people in the future sell GBTC shares to buy other BTC shares due to fee issues, and if the selling behavior leads to more people holding cash and waiting due to the continuous price decline, it is not ruled out that BTC may continue to decline to below $40,000.

Crypto KOL Neuner stated that Bitcoin “might face some selling pressure for a while” because “250 billion dollars is a significant number, and even if only 20% is redeemed, it still means there will be 5 billion dollars in sales in the market.”