Bitcoin falls to lowest level since spot ETF was approved, could GBTC be the culprit?

Bitcoin prices fell again on Thursday, falling to a one-month low of $40,800. Since the newly approved spot Bitcoin ETF by the U.S. SEC began trading on January 11, Bitcoin has only experienced a brief rise and has now fallen by about 13%.

The performance of crypto stocks was also dragged down. Coinbase, the largest cryptocurrency exchange in the United States, fell about 6.7%, and has fallen 17% since the spot ETF was approved. Bitcoin miner Marathon Digital fell 6.9%, and professional coin hoarder MicroStrategy fell 3%.

GBTC outflows may reach $10 billion, selling pressure remains

Traders are closely watching the flow of funds in ETFs. Many industry insiders believe that the selling pressure from Grayscale GBTC may be the culprit for this round of decline.

JPMorgan analysts led by Nikolaos Panigirtzoglou said on Thursday that Bitcoin prices could face additional downward pressure in the coming weeks if investors in the Grayscale Spot Bitcoin ETF (a conversion from its flagship GBTC) continue to take profits.

GBTC was established in 2013 and managed assets of more than $28 billion when it was converted to an ETF. The Block data showed that on January 17, GBTC saw an outflow of $451 million. Since its conversion to spot ETF trading, the fund has seen an outflow of approximately $1.6 billion.

Part of the funds were absorbed by other spot ETF products. Michael Safai, founding partner of quantitative trading firm Dexterity Capital, said: "Many investors want to wait for Grayscale's negative premium to narrow significantly before exiting their positions. Now that the negative premium has almost disappeared, some traders may have sold and are waiting to buy back into the ETF as soon as possible."

BlackRock 's Spot Bitcoin ETF (IBIT) has seen inflows of more than $1 billion, becoming the first ETF of its kind to reach this milestone.

Fidelity Investments followed closely behind, with its FBTC receiving $358 million in inflows yesterday, the highest single-day inflows since the fund launched a week ago, and total inflows of about $880 million. BlackRock and Fidelity attracted 68% of the inflows of the nine new ETFs on the market, totaling nearly $2 billion.

Among the 11 spot Bitcoin ETFs, Grayscale has the highest management fee in the industry at 1.5%. Franklin Templeton's 0.19% is the lowest, but its recent fund inflows account for less than 2% of all products. Ark Invest has zero fees in the first year of its launch, and 0.21% thereafter. BlackRock, the world's largest asset management company, charges 0.12% in the first year and 0.25% thereafter.

JPMorgan analysts said in a note that things could get worse for GBTC as the investment bank estimated that the fund could lose up to $10 billion.

“Liquidity and market depth are also important, but if other spot Bitcoin ETFs reach critical mass in terms of size and liquidity, GBTC will also be at risk in this regard,” JPMorgan said.

Liquidity generally refers to the ability to sell assets for cash. Reduced liquidity poses risks to investors as they may find it difficult to sell their shares. "If GBTC loses its liquidity advantage, more capital could exit, perhaps an additional $5 billion to $10 billion," the report said.

It’s not just institutional investors that are moving funds, retail investors appear to be moving from exchanges to cheaper spot Bitcoin ETFs. JPMorgan said: “Bitcoin wallets from retail investors have shrunk in recent days.”

Other ETF products have seen capital outflows

Vetle Lunde, a research analyst at K33 , said that there were already a large number of spot Bitcoin products trading around the world long before the U.S. regulatory approval. In fact, he said that global exchange-traded products (ETPs) currently hold more than 864,000 Bitcoins, and from some perspective, the increase in U.S.-traded products so far has been relatively small.

Lunde also noted that in addition to the GBTC exit, Canadian and European ETPs also saw significant outflows over the past week as investors took profits and/or put money into cheaper U.S. ETFs.

There’s also the ProShares Bitcoin Strategy ETF (BITO), which recently surpassed $2 billion in assets under management. While this futures-based ETF doesn’t hold bitcoin, it accounts for 36% of open interest in bitcoin contracts on the CME exchange, Lunde said. He added that futures-based bitcoin ETFs collectively account for 48% of open interest in CME bitcoin.

Lunde believes that as BITO and other futures-based funds experience outflows, they will need to close (sell) their long positions in the futures market, which could put further pressure on Bitcoin prices.

Bartosz Lipiński, CEO of trading platform Cube.Exchange, believes that “ETF hype has faded somewhat and traders’ attention is likely to shift elsewhere. Current options positioning suggests support is around $40,000, which is a major psychological level.”

Independent market analyst Michael van de Poppe advised investors on the X platform: “ Don’t be bearish on BTC and hold a negative outlook, remember, buy on dips and hold.”