Bitcoin prices are still under pressure in the $30,000 to$40,000 area as traders prepare for 16,000 BTC worth GBTC shares unlocking on July.
Analysts in the space are speculating on whether a possible sell-off of shares linked to a multibillion-dollar Bitcoin investment fund ( Bitcoin) could cause a crash in cryptocurrency spot prices.
Grayscale’s premium is negative for several months
Grayscale Bitcoin Trust is the largest digital asset manager in the world. It allows institutional investors indirect exposure to the Bitcoin market via its product, GBTC. Grayscale allows investors to purchase GBTC shares through private placements every day by paying in Bitcoin or in the U.S. Dollar.
Investors cannot sell their GBTC shares until they have completed a six month lockup in secondary markets. They anticipate selling at a premium if the market price crosses the native asset value (NAV) at the time of the sale.
However, liquidating GBTC shares after the market price drops below the NAV can result in losses. Investors who decide to sell their GBTC shares would be doing so to avoid financial loss. This is because the share was trading at a discount (i.e. under its NAV) since February 24, 2021.
Analysts, including JPMorgan strategists, believe that accredited investors may sell at least a portion their GBTC holdings following the July unlocking period. This will further weigh on the current Bitcoin market downtrend.
“Despite this week’s correction, it is difficult to abandon our negative outlook on Bitcoin and the crypto markets generally.” In a note to clients, Nikolas Panigirtzoglou (JPMorgan’s lead strategist) stated that there has been some improvement but that overall our signals are still bearish.
Other analysts think the event will flush sellers out of the market in July. This opens up volatility and bullish potential for new all-time highs.
Are Bitcoin prices related to Grayscale unlock dates and Bitcoin?
Panigirtzoglou explained that investors took up GBTC shares at a 40% premium in December 2020. Grayscale Bitcoin Trust received attractive inflows in February of $2 billion. January saw $1.7 billion.
This means that approximately 140,000 Bitcoin worth shares will be unlocked before the end of July. Between mid-April and mid-June 2013, 139,000 Bitcoin were already released. This coincided with the spot BTC/USD crash that saw it drop from $65,000 to $28,800.
Lyn Alden, founder of Lyn alden Investment Strategy, pointed out the correlation between the spot Bitcoin crash and Grayscale’s GBTC unlocking times. She also noted that this could occur as more shares are unlocked in July.
Alden suggested that the correlation indicated a slowdown in Grayscale’s neutral arbitrage trade.
Arbitrage trade is where institutional investors, such as hedge funds, borrow Bitcoin to buy GBTC shares. These investors then sell GBTC shares to retail investors on secondary markets, usually at a premium, once the lock-up has expired. They then return the Bitcoin they borrowed to their lenders and pocket any difference.
Alden tweeted late Monday that “part of the run-up during the second half 2020 was due to Grayscale neutral arbitrage trade sucking in a ton bitcoin.”
“When ETFs, and other ways to access Bitcoin made GBTC more unique, the premium vanished, so the neutral arb trade vanished.”
