(Bloomberg) — Bitcoin at one point rose above $42,000 as outflows from the $20 billion Grayscale Bitcoin Trust slow, strategists say, helping halt Bitcoin’s two-week slump. He said it was possible.
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Since Bitcoin became an exchange-traded fund (ETF) on January 11, about $4.8 billion has been drained from the world’s largest Bitcoin portfolio, which is more than a decade old, according to data compiled by Bloomberg. Bitcoin fell about 20% during the same period.
The fund’s conversion from a closed-end format allowed investors to end a popular arbitrage trade that triggered a liquidation by the estate of the bankrupt FTX exchange. The daily pace of outflows from the vehicle, also known as GBTC, peaked at $641 million on January 22nd, but had calmed down to $394 million by January 25th.
“We are beginning to see a pattern of declining redemptions from GBTC,” Sean Farrell, chief crypto strategist at Fundstrat Global Advisors, said in a note. “While we certainly need a few more days of follow-through, even a slight slowdown in this outflow of assets under management would be a huge boost for the market.”
The Grayscale Fund began trading in the new format on the same day that nine other Bitcoin Spot ETFs, including those from BlackRock Inc. and Fidelity Investments Inc., made their U.S. debuts. Those funds have attracted more than $5 billion, with net inflows across the 10 spot ETFs amounting to about $745 million, according to data compiled by Bloomberg Video.
Since early 2021, when the product was closed, Grayscale Vehicle’s stock price has fallen to a level that is cheap compared to the portfolio’s underlying Bitcoin holdings. Since ETF units tend to be well above their net asset value, the prospect of a trust conversion led speculators to bet that the discount would disappear, which is understandably what happened.
JPMorgan Chase strategists, including Nikolaos Panigirtzoglou, wrote in a note that “profit taking on previous GBTC investments made at a discount to net asset value was the main driver of the Bitcoin correction last year. It’s very likely,” he wrote. The team added that such profit-taking “should largely recede and limit Bitcoin’s downside going forward.”
“Dominating” the volume
Grayscale Bitcoin Trust “dominates trading volume and has already solidified its role as a true capital markets tool for transferring risk to Bitcoin,” said a sales and distribution representative at Grayscale Investments. Managing Director John Hoffman said earlier this week. He further added that “GBTC’s diverse shareholder base will continue to deploy strategies that influence capital inflows and outflows.”
Bitcoin rose nearly 160% last year, outpacing traditional assets such as stocks, amid hopes that a U.S. spot ETF will boost adoption of cryptocurrencies by institutional and retail investors.
The token has retreated since the start of the year, lagging behind global markets as investors wait to see if the hype becomes reality. According to Bloomberg Intelligence, the US Bitcoin Spot ETF Group has become the most successful ETF launch in history by both trading and flow metrics.
Bitcoin hit an intraday high of $49,021 on January 11, when the fund was deployed, but fell to a low of $38,510 earlier this week. The largest digital asset rose as much as 5.6% to $42,138 during New York trading hours on Friday. It hit an all-time high of nearly $69,000 in 2021 during the pandemic-era crypto mania.
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