Navigating Bitcoin’s Market Shift: GBTC Outflows Slow, ETFs Rise

Bitcoin has stabilized around the $40,000 mark as the outflow from the Grayscale Bitcoin Trust (GBTC), which hit $20 billion, slowed down. Analysts believe this deceleration in outflows could help mitigate the two-week decline in the cryptocurrency.

Approximately $4.8 billion has exited the more than decade-old Bitcoin portfolio since it transitioned into an exchange-traded fund (ETF) on January 11, leading to a 20% drop in Bitcoin’s value over the same period.

The conversion of the fund from a closed-end format eliminated a popular arbitrage trade, prompting disposals by the estate of the bankrupt FTX exchange. While outflows peaked at $641 million on January 22, they tapered to $394 million by January 25. Sean Farrell, head crypto strategist at Fundstrat Global Advisors, noted a pattern of decreasing redemptions from GBTC and suggested that a slowdown in the asset under management (AUM) exodus could significantly benefit the market.

The Grayscale fund adopted its new format on the same day as the debut of nine other spot Bitcoin ETFs in the US, including those from BlackRock Inc. and Fidelity Investments. These funds have attracted over $5 billion in total, with a net inflow of about $745 million into all 10 spot ETFs, according to Bloomberg data.

Grayscale’s shares, previously at a discount to the portfolio’s underlying Bitcoin holdings, have now aligned with the net asset value due to the trust’s conversion. JPMorgan Chase & Co. strategists, including Nikolaos Panigirtzoglou, believe that profit-taking on previous GBTC investments made at a discount to net asset value last year has been a major factor behind Bitcoin’s recent correction. They anticipate that such profit-taking is largely over, limiting further downside for Bitcoin.

Despite Bitcoin’s correction since the beginning of the year and its underperformance compared to traditional assets, the Grayscale Bitcoin Trust continues to dominate trading volume. John Hoffman, managing director of sales and distribution at Grayscale Investments, emphasized GBTC’s role as a capital markets tool for risk transfer in Bitcoin.

Bitcoin’s surge of nearly 160% in the previous year, outperforming traditional assets, was driven by expectations that US spot ETFs would encourage broader adoption by institutional and individual investors. However, the cryptocurrency has faced a retreat this year, and its performance is being closely watched to see if the earlier hype will translate into reality. As of 09:37 p.m. UTC on Friday, Bitcoin was trading at $40,202, having reached a record high of almost $69,000 during the crypto mania in 2021.


Disclaimer: Not Investment Advice

it’s crucial to understand that the information provided here is not to be construed as investment advice. The crypto market is dynamic and highly speculative, and decisions should be made based on thorough personal research and consideration of individual risk tolerance. Always consult with financial professionals and conduct your own due diligence before making any investment decisions. The intention of this exploration is to present insights and trends, not to provide specific investment recommendations.

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