The world’s largest bitcoin fund, Grayscale’s GBTC, was once a Pacman-like entity, insatiably hoovering up bitcoin. When GBTC was a trust trading on OTC Markets, it had no mechanism for retail investors to sell any of its bitcoin holdings.
For a full decade, GBTC gradually acquired more and more bitcoin, cresting a staggering net asset value of $30 billion earlier this month. Then on January 10, everything changed when the SEC approved GBTC’s conversion into an ETF.
For the first time in history, GBTC began systematically selling bitcoin.
What’s more, it wasn’t the choice of any Grayscale trader to sell; selling was a requirement. As an ETF fund manager, Grayscale must ensure that GBTC’s share price tracks the price of bitcoin.
Of course, that price tracking requires selling and buying bitcoin every day to ensure that GBTC’s quantity of bitcoin in custody matches bitcoin’s fluctuating price and corresponding GBTC share price.
One week ago — literally, overnight — GBTC became the world’s number one seller of bitcoin. Even with the currency’s price in decline since the SEC approved 11 spot ETFs, market participants are still struggling to accommodate Grayscale’s gigantic sell orders.
Grayscale’s big feet leave big footprints
As the price of bitcoin declines and Grayscale must sell commensurately, GBTC’s daily bitcoin sales have formed a predictable pattern.
Granted, with its tens of billions of dollars worth of bitcoin, it wasn’t hard to track Grayscale’s lumbering footprints.
Galaxy Digital’s head of research Alex Thorn spotted Grayscale’s market impact. He believes most of Grayscale’s bitcoin sales have occurred during the final open hour for US stock markets.
According to Thorn, bitcoin selling pressure predictably picked up around 3 pm — giving managers enough time to slowly liquidate rather than risking a market-on-close order at 4 pm.
Opting for cheaper ETFs
Bloomberg’s senior ETF analyst, Eric Balchunas, indicated that GBTC’s flows were negative for two days after the SEC approved its conversion to an ETF. Grayscale’s bitcoin sales reflect investors selling GBTC (which charges 1.5% annually) and buying other ETFs which charge as little as 0.2% annually.
Arkham Intelligence indicates that Grayscale has been moving bitcoin to Coinbase Prime to facilitate these sales. Transactions to addresses labeled ‘Coinbase Prime Deposit’ indicate that Grayscale sent 9,000 BTC on December 16 plus 18,400 BTC on January 17 — both to Coinbase Prime. Unsurprisingly, Grayscale made the transfers close to the time that the NYSE opens for trading at 9:30 am.
Like many other spot bitcoin ETF sponsors, Grayscale listed Coinbase as an authorized counterparty on its S1 form. This means Grayscale may use Coinbase to buy and sell bitcoin for its ETF.
In summary, Grayscale is selling off bitcoin in a predictable pattern, possibly due to investors reshuffling their investments into products with lower management fees. GBTC, which once ranked among the world’s largest holders of bitcoin, suddenly turned into the world’s number one seller this week. After investors gained a plethora of options for investing in a spot bitcoin beyond GBTC, they have forced Grayscale to sell its bitcoin as they rotated into self-custody, alternative investments, or any of the other 10 new spot bitcoin ETFs.