Will Bitcoin Price Go Up Or Down When GBTC Unlocks?

The Grayscale Bitcoin Trust (GBTC) of the large US crypto investment firm Grayscale Investments is about to reactivate its shares and put them up for sale. There is a lot of debate about what this means for Bitcoin (BTC) price: will the price of Bitcoin go up or down when GBTC is unlocked? And whether some investors will step into the market to pay off the loans they took out to buy the stock.

Will Bitcoin Price Go Up Or Down When GBTC Unlocks?

When a person buys GBTC, they are banned for six6 months. This means that investors cannot sell their shares on the market for six months. In addition, the trust does not trade in its BTC, only in stocks. However, there is still some confusion about how it works, as some believe the trust will sell billions of BTC, adding to the pressure on the price.

In both cases, it’s been nearly six months “since GBTC trading went out of favor, so open keys work,” said Jeff Dorman, chief investment officer (CIO) for the investment firm. Arca Investment is based in the US, a stated a few days ago

According to the crypto data aggregator Skew, assuming that the price of BTC has not changed for six months and the GBTC premium remains the same, “accredited investors like hedge funds could book positions and sell their shares on a daily basis. Then 6 months later on the secondary market the premium will be collected. “

According to Bybt.com data, investors who bought GBTC earlier this year will now sell their shares at a loss as the GBTC premium has been negative since the end of the year. However, that discount has been going down lately – it hit 10% last Friday, compared to 21% in May.

“I suspect the future of GBTC premium / discount trading will be much narrower than we’ve seen in the past.” Charlie Morris, founder and chief investment officer of crypto asset data provider ByteTree Asset Management , wrote, adding, “The bottom line is that GBTC risk for the Bitcoin ecosystem is now down towards us.”

According to his calculations, a person who bought GBTC on December 18, 2017, when GBTC was trading at a high premium, lost 18%, despite the fact that BTC price has increased 85% since then. “However, a person who bought GBTC on May 13, 2021 when GBTC was trading at a discount was down 17% against BTC, a 30% decrease,” added Morris.

Additionally, an important feature of GBTC is that there is no way to redeem the underlying cryptocurrency – once BTC has been deposited into the trust, it will remain there indefinitely. As the crypto intelligence company Coin Metrics once described, crypto trusts are a “massive pool” that effectively locks crypto files and removes them from circulation.

One driving force that created a vortex that has drawn large amounts of BTC into this offering is that institutional investors can take advantage of the Grayscale Bitcoin Trust premium by depositing BTC into a trust fund and simultaneously depositing BTC on Chicago Sell ​​Mercantile Exchange.

Meanwhile, a possible sale of shares in Grayscale’s trust fund at the end of the lockdown could be “a headwind” for BTC price, JPMorgan strategists, led by Nikolaos Panigirtzoglou, reported by Bloomberg in late June. Bitcoin’s fair value is between $ 23,000 and $ 35,000 over the medium term, they said, adding that their signals “remain bearish overall”.

Will Bitcoin Price Go Up or Down When GBTC Unlocks – What Moves Investors?

The cryptocurrency service provider Amber Group noted that there was “a lot of bearish talk” about these GBTC activations, while “the practical ignoring that in-kind subscriptions are funded by debt will eventually be converted into spot purchases”.

As soon as they are activated, investors buy BTC in the arbitrage market on the spot market over the course of the next 6-month cycle.

As a result, the Amber Group states that investors in BTC are signing up at net asset value (NAV) by depositing funds into the trust. Then, when unlocked, they sell the stock for cash and “use the cash to buy back BTC to pay off liabilities / back to the underlying portfolio”.

However, some argue that not everything is that simple:

Jeff Dorman wrote, “No,” unlocking GBTC will not destroy the market. It can actually lead to buying pressure, not selling pressure. Investors who got into trading by locking borrowed coins may now have to buy them back to repay their loan, while depositors holding their BTC may need to buy back the coins to get their base portfolio back.

“The biggest unlocks are in the next 2 months, which could result in a lot of GBTC sales in the open market,” Dorman said, adding that “when the money runs out it can really put pressure on, not sell pressure as the GBTC sellers need to buy back Bitcoin to cover short-term trading. “

Grayscale Bitcoin Trust is now closed and has $ 21.7 billion (AUM) under management. The Ethereum Trust is now also closed, with $ 6.6 billion in assets under management.

Meanwhile, Grayscale Investments says, as previously reported, it is “100% committed” to converting GBTC into an Exchange Traded Fund (ETF), but when to do so will depend on the regulatory environment.

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