Understanding GBTC Outflows: A Heuristic Analysis and Future Projections

The recent approval of the Spot Bitcoin ETF has brought Wall Street into the Bitcoin market, but it has also led to significant selling pressure from the Grayscale Bitcoin Trust (GBTC), which holds the largest pool of Bitcoin in the world. At its peak, GBTC held more than 600,000 Bitcoin. However, since its conversion from a closed-end fund to a Spot ETF, GBTC has seen outflows of over $1 billion in the first days of ETF trading.

This is surprising considering the negative price action in the market since the SEC approved the ETF. While other ETF participants have seen inflows of approximately $2 billion, GBTC has experienced net outflows of $1 million. Despite this, these outflows are actually bullish for Bitcoin in the medium-term, despite the downside volatility that many did not expect post-ETF approval.

To forecast the near-term price impact of Spot Bitcoin ETFs, it is important to understand the causes of GBTC outflows, who the sellers are, their estimated stockpiles, and how long the outflows are expected to continue. The GBTC premium played a significant role in driving the Bitcoin bull run, allowing market participants to acquire shares at net asset value and mark their book value up to include the premium. This drove demand for GBTC shares and spot Bitcoin.

However, as the GBTC premium disappeared and the Trust began trading below NAV, a chain of liquidations occurred. The GBTC discount had a negative impact on the entire industry, leading to cascading liquidations of GBTC shares. This, combined with the bankruptcy estates of those involved in the “risk-free” GBTC trade, further pushed down the GBTC discount.

The FTX estate, the largest of these parties, recently liquidated Bitcoin across the first days of Spot Bitcoin ETF trading to pay back its creditors. The steep GBTC discount relative to NAV also affected spot Bitcoin demand, as investors went long on GBTC and short on BTC to collect a BTC-denominated return as GBTC moved back towards NAV. This further impacted spot Bitcoin demand.

Despite these challenges, there are still considerable quantities of bankruptcy estates that hold GBTC and will continue to liquidate their stockpile of Bitcoin. It is important to analyze different segments of GBTC shareholders and their financial strategies to understand the potential for additional outflows. Each segment may have an optimal strategy for liquidating their GBTC shares.

In conclusion, the GBTC outflows following the approval of the Spot Bitcoin ETF have had a significant impact on the market. While the outflows may continue in the near term, they are ultimately bullish for Bitcoin in the medium-term. Understanding the causes of these outflows and the strategies of different GBTC shareholders can provide insights into the potential scale of future outflows.