The recent conversion of Grayscale’s Bitcoin Trust (GBTC) into a spot bitcoin exchange-traded fund (ETF) was meant to be a watershed moment for crypto investment vehicles.
But instead of sparking a bitcoin price surge as many anticipated, it has coincided with falling prices and heavy outflows from GBTC itself. New reporting indicates that collapsed crypto exchange FTX played a major role in those outflows by selling off a huge GBTC position after the conversion.
TLDR
FTX sold about $1 billion worth of Grayscale’s Bitcoin Trust shares after it was converted to a spot ETF, explaining much of the outflows from the fund
FTX held 22 million GBTC shares before the conversion, valued around $900 million, and has since sold off its entire position
Bitcoin’s price has fallen since the ETF conversion and introduction of new spot ETFs, contrary to optimistic predictions
Now that FTX has finished selling, theoretically selling pressure could ease since bankruptcy estates liquidating is uncommon
Alameda Research dropped its lawsuit against Grayscale over fees after the conversion enabled share redemptions
Data reviewed by CoinDesk shows that FTX, which filed for bankruptcy in November 2022, sold 22 million GBTC shares worth close to $1 billion following the fund’s January 11th ETF conversion.
The shares, remnants of a pre-bankruptcy $900 million GBTC investment, represented nearly a third of total GBTC outflows over $2 billion.
FTX has now exited its position entirely. The liquidation of such a large holding by a distressed bankruptcy estate is seen as heightening selling pressure on bitcoin in an already bearish market.
#FTX Shocks Market with $1B #Grayscale ETF Sell-Off & Alameda Drops Bombshell Lawsuit Against Grayscale! ???????????????? $GBT
• ???? FTX’s bankruptcy estate offloaded approximately $1 billion of Grayscale’s Bitcoin ETF, shedding light on recent GBTC outflows.
• ???? Since the conversion… pic.twitter.com/iipXsgXnef
— RichQuack (@RichQuack) January 22, 2024
Hopes were high that easy-to-trade bitcoin ETFs would spur major institutional investment and validation of the cryptocurrency, boosting prices.
The Grayscale conversion and simultaneous SEC approval of spot ETFs from mainstream providers like BlackRock seemed poised to do that. Yet bitcoin has only extended its months-long slide amid heavy trading volumes.
Some analysts think FTX’s finished GBTC liquidation could actually ease selling pressure if that singular massive source of dumping is indeed closed. The fund’s manager, Digital Currency Group, is also said to be on better financial footing after FTX’s exit.
So GBTC, along with the new spot ETFs, may still benefit bitcoin prices long-term by opening crypto investing to more investors if market conditions improve independent of FTX.
Wait, if $1bn of the selling in GBTC was FTX LIQUIDATORS as reported, that is 1/3 of the total outflows. That changes the entire picture!!!! That selling is now done.
We could actually get a bounce now and that could trigger a short squeeze.
— Ran Neuner (@cryptomanran) January 22, 2024
Additionally, Alameda Research, the trading firm tied to FTX, has dropped its lawsuit against Grayscale over fees and share redemption restrictions. The redemption process has been initiated for authorized participants now that GBTC is an ETF instead of a closed-end fund. Between that change and FTX’s absence, GBTC’s future looks less clouded than during the days leading up to its ETF conversion.
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