JPMorgan: Potential For $2.7 Billion In Outflows From Grayscale Bitcoin Trust (GBTC)

Grayscale recently met with the Securities and Exchange Commission (SEC) to discuss its application for a spot Bitcoin exchange-traded fund (ETF). As the date for a decision on the application draws closer, many are beginning to wonder what will happen if spot Bitcoin ETFs are allowed.

Because Jan. 10 is the final day for a previously delayed decision on the Ark and 21Shares ETFs, JPMorgan has said it is also a date to watch for a potential announcement on spot Bitcoin ETFs.

JPMorgan is also looking ahead to what may happen after the Grayscale Bitcoin Trust is converted into a spot Bitcoin ETF. It predicts there could be outflows totaling more than $2.7 billion because the current ETF — GBTC — is trading below net asset value (NAV). 

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This is significant because if Grayscale's spot Bitcoin ETF is approved, the ETF will be converted from the current Bitcoin Trust into a spot Bitcoin ETF. If it is approved and converted, speculative traders will be able to pocket the difference between the current price and NAV. 

“To proxy the buying flow into [the Grayscale Bitcoin Trust] since the beginning of the year, we cumulate the daily signed dollar volume, i.e., the daily volume in thousands of shares times the price times the sign of the price change, positive if the price had increased over that day and negative if the price had decreased,” JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a report on Nov. 16.

Panigirtzoglou went on to say that “this methodology produces an estimate of around $2.5 billion for the net cumulative flow into [the Grayscale Bitcoin Trust] since the beginning of the year. This number increases to close to $2.7 billion if one also adds the covering of the short interest since the beginning of the year.” 

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JPMorgan also said that the outflows could be even greater if the fees for the spot Bitcoin ETF are above the level of their competitors. 

"We envisage a more intense competition with the average fee for Bitcoin ETFs converging towards that of Gold ETFs, which currently stands at around 50 basis points," according to the report.

If traders are indifferent between the several applications for spot Bitcoin ETFs, they will likely go to the one with the lowest fees. This could result in outflows exceeding the $2.7 billion that JPMorgan discussed. 

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