Grayscale and Bitcoin ETF: From Bull Market Engine to Bear Market Inducement

Grayscale has been an important institutional investor representative in the cryptocurrency field since its establishment. As a subsidiary of Digital Currency Group (DCG) founded in 2013, Grayscale has long provided compliant cryptocurrency investment channels for investors through trust funds, with its funding primarily coming from institutional investors and retirement funds.

However, after the Grayscale GBTC trust converted to a spot Bitcoin ETF on January 11, the situation changed dramatically. As of now, GBTC has experienced a cumulative outflow of $3.45 billion, making it the only Bitcoin ETF product in a net outflow state. This means that Grayscale GBTC has become the main factor in the overall capital outflow of current Bitcoin ETFs, creating the largest selling pressure in the short term.

Before the emergence of the spot Bitcoin ETF, Grayscale had always been one of the most important institutional investors in the cryptocurrency space. Around 2020, Grayscale was even seen as a major driving force behind the bull run. Against the backdrop of the delayed approval of the Bitcoin ETF applications, Grayscale became the main channel for institutions and accredited investors to enter the cryptocurrency market, bringing a significant influx of capital to the market.

However, the long-standing negative premium issue of Grayscale Trust products has always been a pain point for investors. Due to the lack of a clear exit mechanism, many investors can only sell their shares at a discount in the secondary market. This situation began to change in June 2023, as expectations for the approval of spot Bitcoin ETFs warmed up, and the negative premium of GBTC gradually narrowed.

After GBTC was converted to an ETF, a large number of investors chose to take profits and exit, resulting in ongoing selling pressure. As of the time of publication, GBTC experienced outflows exceeding $640 million in a single day, setting a new historical high. Notably, the other 10 Bitcoin ETF products are all in a state of net inflow, highlighting the uniqueness of GBTC.

One important reason for the large-scale redemptions of GBTC is its high management fee. The 1.5% management fee rate of GBTC is significantly higher than the 0.2%-0.9% fee levels of other ETF products, which drives investors to seek more cost-effective alternatives.

Currently, GBTC still holds about 500,000 Bitcoins, valued at approximately $20 billion. This means that for some time in the future, the selling pressure from GBTC may continue to affect the market. Institutional investors and new funds may wait for the right opportunity to gradually absorb this portion of chips.

Looking back at the development of Grayscale, we can see its transformation from a driving force in the bull run to a potential risk factor in the current market. This shift reminds us that in the rapidly evolving cryptocurrency industry, excessive reliance on a single institution or overestimating the strategies of large investors can pose risks. For industry participants, maintaining independent thinking and objectively assessing market dynamics may be one of the most valuable lessons in this unique cycle.