Whether a potential stock sell-off in connection with a billion dollar Bitcoin (BTC) hedge fund could lower the spot price of the cryptocurrency has become a hotly debated topic among analysts.

Grayscale bonuses stay negative for months

The argument concerns Grayscale Bitcoin Trust, the world’s largest digital asset manager, which gives institutional investors indirect access to the Bitcoin market through its GBTC product. Investors buy GBTC shares daily directly through Grayscale in private positions by paying in Bitcoin or US dollars.

However, investors can sell their GBTC shares to third parties on the secondary market after a six-month lock-up period. Hence, they expect liquidation at a higher rate if the market price at the time of sale exceeds the native asset (NAV).

On the other hand, if the market price has fallen below the NAV, the liquidation of GBTC shares will result in a loss. So if investors decide to dispose of their GBTC holdings, they must do so to avoid financial losses. This is because the stock has been trading at a discount, i.e. below the NAV, since February 24, 2021.

Some analysts, including strategists from JPMorgan, believe that accredited investors will sell at least some of their GBTC holdings once it is unlocked in July, making it even more difficult to influence the ongoing downtrend in the Bitcoin market.

“Despite this week’s correction, we are reluctant to give up our negative view of the Bitcoin and crypto markets in general. So, despite some improvements, our signals are generally bearish, ”said Nikolas Panigirtzoglou, senior strategist at JPMorgan, in a statement to clients.

However, other analysts believe the event will drive sellers out of the market in July, opening up both volatility and upside potential for a break of new all-time highs.

Does the Bitcoin price correlate with the grayscale unlock date?

It was GBTC shares that were bought by investors at a premium of around 40% in December 2020. That month, the Grayscale Bitcoin Trust posted attractive cash flow of $ 2 billion, Panigirtzoglou said, followed by $ 1.7 billion in January.

That means shares worth around 140,000 bitcoins will be unlocked by the end of July, around 139,000 bitcoins were issued between mid-April and mid-June, a period that also coincides with the BTC / BTC crash $ 28,800.

Lyn Alden, founder of Lyn Alden Investment Strategy, notes a correlation between the spot crash in Bitcoin price and Grayscale’s GBTC unlock time, noting that the same can happen when multiple stocks are traded.

Alden suggests that the correlation indicates a slowdown in Grayscale’s “neutral arbitrage”.

In arbitrage, institutional investors (such as hedge funds) borrow bitcoin to buy GBTC stocks. After the lock-up period, these investors will then sell GBTC shares to retail investors on the secondary market, usually for a fee. Then they return the borrowed bitcoin to their lender and pocket the difference.

“Part of the spike in the second half of 2020 is due to neutral, grayscale arbitrage trading, which is attracting tons of Bitcoin,” Alden tweeted late Monday, adding:

“As ETFs and other new ways to access Bitcoin make GBTC less unique, the premium disappears, so the neutral Arb transaction disappears.”

However, according to ExoAlpha’s David Lifchitz, the arbitrage strategy may have contributed to, but not caused, Bitcoin’s price decline.

The Investment Director noted that the GBTC arbitrage strategy really is for the big-budget investor. That’s because they have to hold a short-term bitcoin position during the GBTC lockdown – risking the overtime cost of making up for the price difference that caused the price difference.

“And for the simple buyers of GBTC stock at a discount on BTC who are not shorting BTC, their profit depends on the price they bought GBTC at: if they bought $ 40,000 to $ 60,000, they’ll turn red today be… and may not want to sell and take losses just yet, ”he told Cointelegraph.

Michael Sonnenshein, CEO of Grayscale, told Barron’s that investors are buying GBTC stock with medium to long-term prospects. As a result, they may not want to sell their holdings as soon as they are unlocked.

Sunshine added:

“I often say that investors will definitely think about where the price of a stock is in relation to net worth or relative to Bitcoin before they even think about raising liquidity.”