The Influence of the Largest Bitcoin Whale is Declining

Grayscale, as an important institutional investor in the cryptocurrency space, has long provided compliant investment channels for investors through trust funds. However, since the Grayscale GBTC trust successfully converted to a spot Bitcoin ETF on January 11, GBTC has become a major source of selling pressure. As of now, GBTC has seen a total outflow of $3.45 billion, while the other 10 ETFs have all shown net inflows. This means that GBTC has become the core factor in the overall capital outflow of Bitcoin ETFs, constituting the largest selling pressure in the short term.

Grayscale has been a significant institutional investor in the cryptocurrency space since 2019. As a subsidiary established in 2013 by a certain digital currency group, Grayscale has long provided compliant investment channels for investors through trust funds before the listing of the spot Bitcoin ETF, with over 90% of its funding coming from institutional investors and retirement funds. On January 11 of this year, when GBTC converted to an ETF, the management scale of GBTC reached 250 billion USD, making it the largest cryptocurrency custody institution at that time.

Grayscale's single trust fund also includes mainstream assets and established coins such as ETH, BCH, and LTC, demonstrating its robust investment preference. These trusts are essentially "naked long trusts," with only inflows and no outflows in the short term. Investors choose to deposit BTC and ETH for arbitrage purposes, which not only leads to continuous growth in Grayscale's corresponding trust scale but also positively impacts the spot market by absorbing the corresponding coins from the supply side, alleviating selling pressure.

Although GBTC is now seen as a bear market catalyst, it was one of the main market drivers during the 2020 bull market. Against the backdrop of Bitcoin ETF approvals being delayed, Grayscale established itself as almost the only compliant entry channel, becoming an important intermediary for qualified investors and institutions to enter the crypto market, facilitating the direct entry of incremental OTC funds.

After news emerged in June 2023 that a large asset management company applied for a spot Bitcoin ETF, the negative premium of GBTC began to gradually narrow. In the more than six months of ETF expectation speculation, the negative premium of GBTC rose from 30% to nearly 0, and most funds that had positioned themselves in advance are now at the profit-taking exit point.

From the perspective of negative premium, this has caused significant losses for private investors who participated in the GBTC and ETHE trusts in the primary market, as these trusts cannot directly redeem the underlying assets. Some investors also bought large amounts of GBTC in the secondary market due to the negative premium, betting that the negative premium would disappear once GBTC transitions to an ETF in the future.

After GBTC successfully transitioned to a spot ETF on January 11, it began to cause sustained selling pressure on BTC. So far, GBTC has seen a daily outflow of over $640 million, marking the largest single-day capital outflow to date. In the first 7 trading days, the total trading volume of all spot Bitcoin ETFs was about $19 billion, with GBTC accounting for more than half of that, which means that the incremental funds brought in by ETFs are still in a phase of hedging against the continuous capital outflows from GBTC.

One of the main reasons for the outflow of funds from GBTC is its management fee of 1.5%, which is much higher than the fee levels of other ETFs at 0.2%-0.9%. To some extent, this will be a public game: GBTC still holds over 500,000 BTC( worth about 20 billion USD), and the institutions and funds that are waiting to enter will look for the right timing to collect chips. This also means that for a period of time in the future, the selling pressure on GBTC may still outweigh the willingness of funds to flow in.

Looking back at history, Grayscale, which was once viewed as the "bull market engine" attracting off-market incremental funds in 2020, has not only become ineffective in the current environment but has also turned into a potential industry risk point. For the rapidly developing crypto industry, abandoning the obsession with Whale layouts and objectively viewing the role of institutional investors may be one of the important experiences we can gain during this special cycle.