Here’s why unlocking large numbers of GBTC stocks in grayscale could boost the market

The Bitcoin market could rise this month as the world’s largest crypto fund Grayscale unlocks shares in the Grayscale Bitcoin Trust (GBTC).

Some analysts and investors said they may need to enter the market to buy Bitcoin and pay off the crypto loans they used to fund the first purchase of GBTC shares.

The cryptocurrency service provider Amber Group has tweets:

“Lots of pessimistic talk about the GBTC unlock event while ignoring the possibility that debt coin subscriptions will eventually lead to spot market purchases.”

This view contrasts with projections released last month by analysts at the largest US bank, JPMorgan. They argue that the end of the lock-up period will adversely affect GBTC stock and Bitcoin price.

“The sale of GBTC shares after the six-month lock-up period in June and July brings Bitcoin another difficulty,” wrote JPMorgan’s strategists, headed by Nikolaos Panigirtzoglou, on June 24th. The move will lead to “more downward pressure on the GBTC price and the Bitcoin market in general”.

But with unlock rates set to rise now, many analysts take the opposite view. While the sale of GBTC shares could lead to a deeper drop in prices and the loss of new capital, its negative effects would likely be mitigated by buying back Bitcoin on the spot market.

Jeff Dorman, Chief Investment Officer of the crypto-focused wealth management company Arca, has, write In a newsletter this week:

“The biggest unlocks will be in the next 2 months, which will result in a lot of GBTC sales in the open market. When the fund releases the trade, it can actually create buying pressure on bitcoin, not selling pressure, as GBTC sellers have to buy back bitcoin to cover the shortfall in the transaction. “

Unlock Grayscale Bitcoin Trust | source: bybt

Unlocking the Grayscale Bitcoin Trust could be significant given that the transaction itself has been so popular in recent years and early 2021. The fund posted record inflows of $ 2 billion in December, followed by $ 1.7 billion in January inflows, according to JPMorgan.

Operationally, accredited investors (mostly institutional and high net worth dealers) can subscribe to GBTC Shares directly at the Fund’s Net Asset Value (NAV), which is closely linked to Bitcoin’s spot price. They did this in daily private placements by depositing bitcoins or US dollars that they owned or borrowed. After a 6-month blocking period, these shares can be sold on the secondary market – including to private investors.

For a long time and for a variety of reasons, GBTC stock traded 40% or more above the Bitcoin spot price. So it looks like a surefire way for big investors to turn a profit – especially given the rather optimistic market sentiment. A sharp fall in spreads or a switch to a discount that reduces the net profit of the arbitrage is hardly to be feared.

But the Bitcoin market has deteriorated in recent months, and in February the GBTC spread narrowed, creating little incentive for new investors. On Thursday, GBTC stock was trading a 10.5% decline, according to Skew.

But it has been almost 6 months since this deal was restricted so the unlocking features are activated.

Investors who have completed the transaction by locking borrowed coins may need to redeem them now to repay the loan. Bitcoin depositors also have to redeem the coin in order to bring it back into the base portfolio.

Assuming that supply-side factors remain constant, the buybacks associated with unlocking grayscale could eventually create upward pressure on Bitcoin.

According to data source bybt.com, the January release of GBTC shares is slated for this month and is expected to issue nearly 40,000 GBTC shares.

Amber Group has tweets:

“BTC investors register with the NAV by depositing funds into the trust. If activated -> sell shares for cash. Use cash to buy back BTC and settle liabilities / bring coins back into base portfolio. “

The largest one-day unlock is expected to take place on July 18 and will issue shares valued at 16,000 BTC. Once unlocked, arbitrageurs can quickly buy Bitcoin from the spot market to pay off loans or return the coin to its original portfolio position, raising Bitcoin higher.

Bitcoin is currently trading at $ 34,586, up 12% from the week.

Source: TradingView

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