Grayscale’s Bitcoin ETF Conversion Could Lead To $2.7 Billion Exodus: JPMorgan
November 24 2023 - 3:15AM
NEWSBTC
In a new analysis, JPMorgan has raised concerns about the potential
outflow of funds following the possible conversion of Grayscale
Bitcoin Trust (GBTC) into an ETF. The banking giant estimates that
the conversion could prompt investors to withdraw at least $2.7
billion. The Grayscale Bitcoin Trust, a pivotal force in the
previous bull market, has seen its discount to Bitcoin’s current
market price shrink from -46% at the beginning of the year to
-9.77% by November 22, the lowest level since mid-August
2021. Notably, this reduction in discount is important because
it indicates that investors are expecting the US Securities and
Exchange Commission (SEC) to approve Grayscale’s conversion to a
spot Bitcoin ETF. However, JP Morgan has cautioned that this
conversion might lead to some instability in the market. $2.7
Billion Exodus Following Bitcoin ETF Approval? JPMorgan analysts,
including Nikolaos Panigirtzoglou, have scrutinized the inflows
into GBTC since the beginning of 2023, revealing a calculated
strategy by traders to exploit the discount for profit upon ETF
conversion. The bank’s methodology considered the cumulative signed
dollar volume, accounting for both the volume of shares traded and
the direction of the price movement. Related Reading: Trader:
Bitcoin Will Inevitably Breeze Past $70,000—Here’s Why The analysts
posit that this influx, primarily driven by speculation over GBTC’s
conversion to an ETF, will likely reverse as investors seek to
capitalize on the arbitrage opportunity presented by the narrowing
of the discount to net asset value. The minimum anticipated
outflow, upon conversion to an ETF, stands at $2.7 billion.
However, this could escalate if GBTC’s current fee structure,
standing at 200 basis points, isn’t significantly reduced
post-conversion. The competitive landscape, as suggested by the ARK
21Shares Bitcoin ETF’s 80 basis points fee, necessitates such a
reduction for GBTC to maintain its market dominance. The impact on
the market could be profound. A full withdrawal of the $2.7 billion
could exert substantial downward pressure on Bitcoin prices.
However, JPMorgan analysts believe that much of this capital will
likely be reallocated to other Bitcoin-related instruments,
mitigating any drastic market disturbance. Related Reading:
Grayscale Files Updated Spot ETF As Bitcoin Barrels Past $37,000
They predict a reconfiguration of assets, shifting from $23 billion
in GBTC and $5 billion in other funds to $20 billion in the trust
and $8 billion in other vehicles. Nonetheless, they caution that a
portion of the funds may exit the Bitcoin space entirely, which
would pose a risk of a downturn in Bitcoin prices. Remarkably, JP
Morgan analysts led by Panigirtzoglou have predicted in early
September that the SEC will be forced to approve spot Bitcoin ETFs
after losing the case against Grayscale. Moreover, JP Morgan’s
forecast hinges on the assumption that the approval of a batch of
ETFs will ignite more intense competition among Bitcoin investment
products, likely resulting in a fee structure more aligned with
those of Gold ETFs, typically around 50 basis points. As the market
awaits the SEC’s decision, the primary concern remains: Whether the
anticipated GBTC outflows will find a new home within the Bitcoin
space or if they will signify a broader withdrawal from BTC
investments. At press time, BTC traded at $37,560. Featured image
from Veri-Media, chart from TradingView.com
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